10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-22433

Brigham Exploration Company

(Exact name of Registrant as Specified in its Charter)

Delaware	75-2692967
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6300 Bridge Point Parkway, Building 2, Suite 500, Austin, Texas 78730

(Address of principal executive offices) (Zip Code)

(512) 427-3300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
None	None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

(Title of Class)

     Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Act).     Yes þ          No o

      As of June 30, 2004, the registrant had 39,675,115 shares of voting common outstanding. The aggregate market value of the registrants outstanding shares of voting common stock held by non-affiliates, based on the closing price of these shares on June 30, 2004 of $9.20 per share as reported on The Nasdaq Stock Market^sm, was $161.1 million. Shares held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock are considered affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes.

      As of March 30, 2005, the registrant had 42,489,396 shares of voting common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive proxy statement for the Registrant’s 2005 Annual Meeting of Stockholders to be held on June 8, 2005, are incorporated by reference in Part III of this Form 10-K. Such definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2004.

BRIGHAM EXPLORATION COMPANY

TABLE OF CONTENTS

		Page
Part I
Item 1.	Business		2
Item 2.	Properties		9
Item 3.	Legal Proceedings		19
Item 4.	Submission of Matters to a Vote of Security Holders		20
	Executive Officers of the Registrant		20
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		21
Item 6.	Selected Consolidated Financial Data		25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		63
Item 8.	Financial Statements and Supplementary Data		66
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		66
Item 9A.	Controls and Procedures		66
Item 9B.	Other Information		68
Part III
Item 10.	Directors and Executive Officers of the Registrant		68
Item 11.	Executive Compensation		68
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		68
Item 13.	Certain Relationships and Related Transactions		68
Item 14.	Principal Accounting Fees and Services		68
Part IV
Item 15.	Exhibits, Financial Statement Schedules		69
Glossary of Oil and Gas Terms			70
Signatures			73
Index to Financial Statements			F-1
3rd Amendment to Two Bridge Point Lease
4th Amendment to Two Bridge Point Lease
5th Amendment to Two Bridge Point Lease
Third Amended Credit Agreement
Second Amendment to Subordinated Credit Agreement
Subsidiaries of the Registrant
Consent of PricewaterhouseCoopers LLP
Consent of Cawley Gillespie & Associates, Inc.
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 1350
Certification of CFO Pursuant to Section 1350

1

BRIGHAM EXPLORATION COMPANY

2004 ANNUAL REPORT ON FORM 10-K

PART I

Item 1.      Business

Overview

      We are a Delaware corporation formed in 1997. We are an independent exploration, development and production company that utilizes 3-D seismic imaging and other advanced technologies to systematically explore for and develop domestic onshore oil and natural gas reserves. We focus our activities in provinces where we believe 3-D seismic technology can be used effectively to maximize our return on invested capital by reducing drilling risk and enhancing our ability to grow reserves and production volumes in a cost-effective manner. Our exploration and development activities are concentrated in three provinces: the onshore Texas Gulf Coast, the Anadarko Basin and West Texas.

      Since our inception in 1990, we have evolved from a pioneering, 3-D seismic-driven exploration company to a balanced exploration and development company with technical and operational expertise and a strong production base. We benefit from our focus in five proven and complementary onshore trends contained within our three core provinces, which provides us with diversification in our drilling investments. We believe that our five focus trends provide us with a broad range of risk profiles and reserve potentials for both natural gas and oil prospects and associated geographical and operational diversification. As a result, we are not dependent on our continued drilling success in a single core trend. Instead, in any given year our overall results may be positively impacted by the results in one or several of our focus trends. We believe that this diversification and our knowledge base in these trends, as demonstrated by our track record, are significant distinguishing factors for us.

      We have generated a multi-year inventory of exploration prospects, which, due to our new field discoveries, are complemented by a multi-year inventory of development locations. Since our inception through December 31, 2004, we have drilled 651 wells, consisting of 470 exploratory and 181 development wells with an aggregate completion rate of 71%. Over the last three years through December 31, 2004, we drilled 120 wells, consisting of 50 exploratory and 70 development wells with an aggregate completion rate of 91%.

      We have accumulated 3-D seismic data covering approximately 10,464 square miles (6.7 million acres) in over 28 geologic trends in seven provinces and seven states. We focus our 3-D seismic acquisition efforts in and around existing producing fields where we can benefit from the imaging of producing analog wells. These 3-D defined analogs, combined with our experience in drilling 651 wells in our 3-D project areas, provide us with a knowledge base to evaluate other potential geologic trends, 3-D seismic projects within these trends and prospective 3-D delineated drilling locations. Over the past three years we have spent $22.1 million on land and seismic and plan to spend $13.1 million in 2005.

      Combining our geologic and geophysical expertise with a sophisticated land effort, we manage virtually all of our projects from conception through 3-D acquisition, processing and interpretation and leasing. In addition, we manage the negotiation and drafting of most of our geophysical exploration agreements, resulting in reduced contract risk and more consistent deal terms. Because we generate most of our projects, we can often control the size of the working interest that we retain as well as the selection of the operator and the non-operating participants.

      In 2004, we increased our level of drilling activity to further capitalize on our multi-year inventory of exploration and development prospects by spending a total of $68.2 million on drilling expenditures. This represented a 94% increase in drilling expenditures from 2003. These drilling expenditures were used to drill 17 exploratory wells and 42 development wells and for other development activities. We also had one exploration well, the Mills Ranch #2-98, that was in progress at December 31, 2004.

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      We currently plan to continue with our accelerated level of drilling activity in 2005, and are currently budgeting to spend a total of $70.3 million to drill 17 exploratory wells and 20 development wells as well as to drill and complete wells that were in progress at December 31, 2004 and for other development activities.

      The historical financial information in this section pertaining to depletion expense and accumulated depletion that are part of our net proved oil and natural gas properties, has been restated. For a further discussion of the impact of the restatement on our selected financial information, see “Item 6. Selected Consolidated Financial Data,” “Item 8. Financial Statements and Supplementary Data — Note 2” and “Item 9A. Controls and Procedures.”

Business Strategy

      Our business strategy is to create stockholder value by growing reserves, production volumes and cash flow through exploration and development drilling in areas where we believe our operations will likely result in a high return on our invested capital. Key elements of our business strategy include:

•  Focus on Core Provinces and Trends. We have accumulated and continue to add to a multi-year inventory of 3-D seismic and geologic data and have developed a strong technical knowledge base in the following geologic trends within our core provinces: the Vicksburg and Frio trends in the onshore Texas Gulf Coast, the Springer and Hunton trends in the Anadarko Basin and the Horseshoe Atoll trend of West Texas. During 2004, we added approximately 655 square miles of 3-D seismic data to our corporate database.

Further, we believe our focus on these five proven onshore trends within our three core provinces provides us with important drilling investment diversification. Since 1999, our drilling success in these trends has resulted in six significant field discoveries and a multi-year inventory of development drilling locations. We plan to focus a majority of our near term capital expenditures in these trends, where we believe our accumulated data and knowledge base provide a substantial competitive advantage.

•  Internally Generate Inventory of High Quality Exploratory Prospects. We utilize 3-D seismic and other advanced technologies, including computer-aided exploration, to generate and maintain a large multi-year inventory of high quality exploratory prospects. Our highly skilled staff of 13 geophysicists and geologists generates substantially all of our prospects. We do not rely on third party generated opportunities, which usually involve the payment of consideration over and above the costs incurred to generate and drill the prospect. We believe that our six significant field discoveries and our history of achieving low all-sources finding costs over the last three, five and seven years, averaging $3.69, $2.44 and $2.12 per Mcfe, respectively, reflect the quality and depth of our 3-D delineated prospect inventory as well our ability to continue to generate such opportunities.

•  Capitalize on Exploration Successes Through Development of Field Discoveries. From 1990 to 1999, we grew our reserves and production volumes primarily through successful 3-D delineated exploration drilling. Due to our exploratory drilling success and the resulting growth in our inventory of development drilling locations, approximately 68% of our drilling expenditures in 2002, 2003 and 2004 were spent on development activities. We believe our ability to balance our higher risk exploratory drilling with lower risk development drilling has reduced our risk profile. For 2005, we intend to allocate approximately 51% of our total drilling expenditures to development activities. See “Item 2. Properties” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Commitments — Capital Expenditures” for additional discussion about capital expenditures for 2005.

•  Accelerate Drilling of Our Prospect Inventory. To capitalize on our multi-year inventory of exploration and development locations, our goal is to continue with our accelerated level of drilling activity in 2005. In 2004 we spent $68.2 million in drilling capital expenditures, representing a 94%

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increase over amounts spent in 2003. For 2005 we have budgeted $70.3 million in drilling capital expenditures. As has historically been the case, our exploratory drilling will test several higher risk, but higher reserve potential prospects. During 2005, including the Mills Ranch #2-98 which was in progress at December 31, 2004, we plan to drill a total of eight such high risk high potential exploratory wells, versus the five and three we drilled in 2004 and 2003, respectively. See “Item 2. Properties” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Commitments — Capital Expenditures” for additional discussion about capital expenditures for 2005.

•

Enhance Returns Through Operational Control. We seek to maintain operational control of our exploration and drilling activities. As an operator, we retain more control over the timing and selection of drilling prospects, which enhances our ability to optimize our finding and development costs and to maximize our return on invested capital. Since we generate substantially all of our projects, we generally have the ability to retain operational control over all phases of our exploration and development activities. As of December 31, 2004, we operated approximately 64% of the pre-tax PV-10% value of our proved developed reserves. Further, in 2004 we operated 50% of the wells we drilled, representing 82% of our drilling capital expenditures. We expect to operate approximately 73% of the wells planned for 2005, representing approximately 95% of our budgeted drilling capital expenditures.

Exploration and Development Staff

      Our experienced exploration staff includes five geophysicists, eight geologists, two computer applications specialists and two geophysical/geological/engineering technicians. Our geologists and geophysicists have different but complementary backgrounds, and their diversity of experience in varied geological and geophysical settings, combined with various technical specializations (from hardware and systems to software and seismic data processing), provides us with valuable technical intellectual resources. Our geophysicists and geologists have an average of more than 25 years of experience per person. We assembled our team according to the expertise that these individuals have within producing basins where we focus our exploration and development activities. By integrating both geologic and geophysical expertise within our project teams, we believe we possess a competitive advantage in our exploration approach.

      Our land department staff includes four landmen with an average of more than 22 years of experience primarily within our core provinces and three lease and division order analysts. Our land department contributed to pioneering many of the innovations that have facilitated exploration using large 3-D seismic projects.

Oil and Natural Gas Market and Major Customers

      Our natural gas produced in the onshore Texas Gulf Coast is sold to various purchasers including intrastate pipeline purchasers, operators of processing plants, and marketing companies under both monthly spot market contracts and multi-year arrangements. The vast majority of our natural gas sales are based on related natural gas index pricing, and in some cases our gas is processed at a plant and we receive a percentage of the value of natural gas liquids recovered.

      Our markets for natural gas produced in the Anadarko Basin are operators of processing plants and marketing companies. We sell gas under both monthly spot market contracts and multi-year contracts, which are normally based on related natural gas index pricing. Some of our natural gas is processed and we receive a percentage of the value of natural gas liquids recovered.

      Most of our natural gas in West Texas is sold to purchasers who process our natural gas under multi-year contracts and pay us a percentage of the value they receive from the resale of the natural gas liquids and the remaining residue gas.

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      We sell our crude oil and condensate at the lease to a variety of purchasers at prevailing market prices under short-term contracts that normally provide for us to receive an applicable posted price plus a market-based bonus.

      Since most of our oil and natural gas production is sold under price sensitive or spot market contracts, the revenues generated by our operations are highly dependent upon the prices of and demand for oil and natural gas. The price we receive for our oil and natural gas production depends upon numerous factors beyond our control, including seasonality, weather, competition, the condition of the United States economy, foreign imports, political conditions in other oil-producing and natural gas-producing countries, the actions of the Organization of Petroleum Exporting Countries, and domestic government regulation, legislation and policies. Decreases in the prices of oil and natural gas could have an adverse effect on the carrying value of our proved reserves and our revenues, profitability and cash flow. Although we are not currently experiencing any significant involuntary curtailment of our oil or natural gas production, market, economic and regulatory factors may in the future materially affect our ability to sell our oil or natural gas production. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors — Oil And Natural Gas Prices Fluctuate Widely And Low Prices Could Have A Material Adverse Impact On Our Business And Financial Results By Limiting Our Liquidity And Flexibility To Carry Out Our Drilling Program” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors — The Marketability Of Our Natural Gas Production Depends On Facilities That We Typically Do Not Own Or Control Which Could Result In A Curtailment Of Production And Revenues.” In 2002, in an effort to achieve better price realizations from the sale of our oil and natural gas, we decided to bring our commodities marketing activities in-house so that we could market and sell our oil and natural gas to a broader universe of potential purchasers. Due to the availability of other markets and pipeline connections, we do not believe that the loss of any single oil or natural gas customer would have a material adverse effect on our results of operations. See “Item 8. Financial Statements and Supplementary Data — Note 10.”

Competition

      The oil and natural gas industry is highly competitive in all of its phases. We encounter competition from other oil and natural gas companies in all areas of our operations, including the acquisition of seismic and leasing options and oil and natural gas leases on properties to exploration and development of those properties. Our competitors include major integrated oil and natural gas companies and numerous independent oil and natural gas companies, individuals and drilling and income programs. Many of our competitors are large, well established companies that have substantially larger operating staffs and greater capital resources than we do. Such companies may be able to pay more for seismic and lease options on oil and natural gas properties and exploratory prospects and to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors — We Face Significant Competition And Many Of Our Competitors Have Resources In Excess Of Our Available Resources” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors — We Have Substantial Capital Requirements For Which We May Not Be Able To Obtain Adequate Financing.”

Operating Hazards and Uninsured Risks

      Drilling activities are subject to many risks, including the risk that no commercially productive reservoirs will be encountered. There can be no assurance that new wells we drill will be productive or that we will recover all or any portion of our investment. Drilling for oil and natural gas may involve unprofitable efforts, not only from dry wells, but also from wells that are productive, but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. The cost and timing of drilling, completing and operating wells is often uncertain. Our drilling operations may be curtailed,

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delayed or canceled as a result of numerous factors, many of which are beyond our control, including title problems, weather conditions, delays by project participants, compliance with governmental requirements and shortages or delays in the delivery of equipment and services. Our future drilling activities may not be successful and, if unsuccessful, such failure may have a material adverse effect on our business, financial condition, results of operations and cash flows. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors — Exploratory Drilling Is A Speculative Activity That May Not Result In Commercially Productive Reserves And May Require Expenditures In Excess Of Budgeted Amounts.”

      In addition, use of 3-D seismic technology requires greater pre-drilling expenditures than traditional drilling strategies. Although we believe that our use of 3-D seismic technology will increase the probability of drilling success, some unsuccessful wells are likely, and there can be no assurance that unsuccessful drilling efforts will not have a material adverse effect on our business, financial condition, results of operations and cash flows.

      Our operations are subject to hazards and risks inherent in drilling for and producing and transporting oil and natural gas, such as fires, natural disasters, explosions, encountering formations with abnormal pressures, blowouts, cratering, pipeline ruptures and spills, any of which can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to our properties and those of others. We maintain insurance against some but not all of the risks described above. In particular, the insurance we maintain does not cover claims relating to failure of title to oil and natural gas leases, trespass during 3-D survey acquisition or surface damage attributable to seismic operations, business interruption or loss of revenues due to well failure. Furthermore, in certain circumstances in which insurance is available, we may not purchase it. The occurrence of an event that is not covered, or not fully covered by insurance could have a material adverse effect on our business, financial condition, results of operations and cash flows in the period such may occur. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors — We Are Subject To Various Operating And Other Casualty Risks That Could Result In Liability Exposure Or The Loss Of Production And Revenues” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors — We May Not Have Enough Insurance To Cover All Of The Risks We Face, Which Could Result In Significant Financial Exposure.”

Employees

      On March 7, 2005, we had 55 full-time employees and two part-time employees. None of these employees are represented by any labor union and we believe relations with them are good.

Facilities

      Our principal executive offices are located in Austin, Texas, where we lease approximately 34,330 square feet of office space at 6300 Bridge Point Parkway, Building 2, Suite 500, Austin, Texas 78730.

Governmental Regulation

      Our oil and natural gas exploration, production, transportation and marketing activities are subject to extensive laws, rules and regulations promulgated by federal and state legislatures and agencies, including the Federal Energy Regulatory Commission (FERC), the Environmental Protection Agency (EPA), the Texas Commission on Environmental Quality (TCEQ), the Texas Railroad Commission and the Oklahoma Corporation Commission. Failure to comply with such laws, rules and regulations can result in substantial penalties. The legislative and regulatory burden on the oil and gas industry increases our cost of doing business and affects our profitability. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors — We Are Subject To Various Governmental Regulations and Environmental Risks That May Cause Us To Incur Substantial Costs.”

      Although we do not own or operate any pipelines or facilities that are directly regulated by FERC, its regulation of third party pipelines and facilities could indirectly affect our ability to transport or market our

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production. Moreover, FERC has in the past, and could in the future impose price controls on the sale of natural gas. In addition, we believe we are in substantial compliance with all applicable laws and regulations, however, we are unable to predict the future cost or impact of complying with such laws and regulations because they are frequently amended, interpreted and reinterpreted.

      The states of Texas and Oklahoma, and many other states, require permits for drilling operations, drilling bonds and reports concerning operations and impose other requirements relating to the exploration and production of oil and natural gas. These states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of such wells.

Environmental Matters

      Our operations and properties are, like the oil and gas industry in general, subject to extensive and changing federal, state and local laws and regulations relating to environmental protection, including the generation, storage, handling, emission, transportation and discharge of materials into the environment, and relating to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards, and this trend will likely continue. These laws and regulations may require the acquisition of a permit or other authorization before construction or drilling commences and for certain other activities; limit or prohibit seismic acquisition, construction, drilling and other activities on certain lands lying within wilderness and other protected areas; and impose substantial liabilities for pollution resulting from our operations.

      The permits required for many of our operations are subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce compliance with their regulations, and violations are subject to fines or injunction, or both. In the opinion of management, we are in substantial compliance with current applicable environmental laws and regulations, and we have no material commitments for capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulations or in interpretations thereof could have a significant impact on us, as well as the oil and gas industry in general. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and comparable state statutes impose strict and arguably joint and several liability on owners and operators of certain sites and on persons who disposed of or arranged for the disposal of “hazardous substances” found at such sites. It is not uncommon for the neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The Resource Conservation and Recovery Act (RCRA) and comparable state statutes govern the disposal of “solid waste” and “hazardous waste” and authorize imposition of substantial fines and penalties for noncompliance. Although CERCLA currently excludes petroleum from its definition of “hazardous substance,” state laws affecting our operations impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil field wastes as “non-hazardous,” such exploration and production wastes could be reclassified as hazardous wastes, thereby making such wastes subject to more stringent handling and disposal requirements.

      Federal regulations require certain owners or operators of facilities that store or otherwise handle oil, such as us, to prepare and implement spill prevention, control countermeasure and response plans relating to the possible discharge of oil into surface waters. The Oil Pollution Act of 1990 (OPA) contains numerous requirements relating to the prevention of and response to oil spills into waters of the United States. For onshore and offshore facilities that may affect waters of the United States, the OPA requires an operator to demonstrate financial responsibility. Regulations are currently being developed under federal and state laws concerning oil pollution prevention and other matters that may impose additional regulatory burdens on us. In addition, the Clean Water Act and analogous state laws require permits to be obtained to authorize discharge into surface waters or to construct facilities in wetland areas. The Clean Air Act of 1970 and its subsequent amendments in 1990 and 1997 also impose permit requirements and necessitate certain restrictions on point source emissions of volatile organic carbons (nitrogen oxides and sulfur

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dioxide) and particulates with respect to certain of our operations. We are required to maintain such permits or meet general permit requirements. The EPA and designated state agencies have in place regulations concerning discharges of storm water runoff and stationary sources of air emissions. These programs require covered facilities to obtain individual permits, participate in a group or seek coverage under an EPA general permit. Most agencies recognize the unique qualities of oil and gas exploration and production operations. Both the EPA and TCEQ have adopted regulatory guidance in consideration of the operational limitations on these types of facilities and their potential to emit air pollutants. We believe that we will be able to obtain, or be included under, such permits, where necessary, and to make minor modifications to existing facilities and operations that would not have a material effect on us.

      See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors — We Are Subject To Various Governmental Regulations and Environmental Risks That May Cause Us To Incur Substantial Costs.”

Operations and Operations Staff

      In an effort to retain better control of our project timing, drilling and operational costs and production volumes, we have significantly increased the percentage of the wells that we operate in the past several years. We operated 50% of the gross wells and 85% of the net wells that we drilled during 2004, as compared with 10% of the gross wells and 17% of the net wells we drilled during 1996. As a result of our increased operational control in recent years, wells operated by us constituted 64% of the pre-tax PV-10% value of our proved developed reserves at year-end 2004, as compared to only 5% at year-end 1996.

      Our operations staff includes five engineers who have drilling, reservoir, environmental and operations engineering experience primarily within our three core provinces. These engineers work closely with our geologist and geophysicist and are integrally involved in all phases of the exploration and development process, including preparation of pre- and post-drill reserve estimates, well design, production management and analysis of full cycle risked drilling economics. We conduct field operations for our operated oil and natural gas properties through our field production superintendent and third party contract personnel.

Website Access to Our Reports

      We make available free of charge through our website, www.bexp3d.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Information on our website is not a part of this report.

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Item 2.      Properties

      Our exploration and development activities are focused primarily in the onshore Texas Gulf Coast, the Anadarko Basin of northwest Oklahoma and the Texas Panhandle, and West Texas. We focus our activity in provinces where we believe 3-D seismic technology can be effectively used to maximize our return on capital invested by reducing drilling risk and enhancing our ability to cost-effectively grow reserves and production volumes.

      The historical financial information in this section pertaining to depletion expense and accumulated depletion that are a part of our net proved oil and natural gas properties, has been restated. For a further discussion of the impact of the restatement on our selected financial information, see “Item 6. Selected Consolidated Financial Data,” “Item 8. Financial Statements and Supplementary Data — Note 2” and “Item 9A. Controls and Procedures.”

      For the three-year period ended December 31, 2004, we completed 109 gross wells (42.4 net) in 120 attempts for a completion rate of 91% at an average all-sources finding cost of $3.69 per Mcfe. We had one exploration well that began drilling in 2004 and is currently in progress. For 2005, we have budgeted approximately $70.3 million to drill 20 development wells and 17 exploratory wells, to drill and complete wells that were in progress at December 31, 2004 and for other development activities. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Commitments — Capital Expenditures.” The following is a summary of our properties by major province as of December 31, 2004, unless otherwise noted.

	Onshore
	Texas			Anadarko			West Texas
	Gulf Coast			Basin			& Other			Total
Capital expenditures for drilling, land and seismic in 2004 (in millions)	$	48.5		$	30.9		$	1.8		$	81.2
Proved Reserves at December 31, 2004
Pre-tax PV10% value (in millions)	$	166.4		$	111.1		$	17.0		$	294.5	(a)
Oil (MBbls)		1,848			605			783			3,236
Natural gas (MMcf)		56,217			45,035			623			101,875
Natural gas equivalents (MMcfe)		67,304			48,665			5,321			121,290
% Natural gas		84	%		93	%		12	%		84	%
Average daily production (MMcfe/d)		20.9			9.7			3.5			34.1
Productive wells at December 31, 2004
Gross		76			168			89			333
Net		28.0			35.7			25.1			88.8
3-D Seismic Data (square miles)		3,763			2,204			4,497			10,464

(a)  Standardized measure at December 31, 2004, was $239.7 million.

Onshore Texas Gulf Coast

      The onshore Texas Gulf Coast region is a high potential, multi-pay province that lends itself to 3-D seismic exploration due to its substantial structural and stratigraphic complexity. In addition, certain sand reservoirs display seismic “bright spots,” which can be direct hydrocarbon indicators and can result in greatly reduced drilling risk. However, “bright spots” are not always reliable as direct hydrocarbon indicators and do not generally assess reservoir productivity. We believe our established 3-D seismic exploration approach, combined with our exploration staff’s extensive experience and accumulated knowledge base in this province, particularly given our recent drilling successes, provides us with significant

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competitive advantages. The majority of our onshore Texas Gulf Coast activity is currently concentrated in the Vicksburg and Frio trends.

      Over the past three years approximately 64% of our total capital expenditures for drilling, land and seismic have been allocated to our onshore Texas Gulf Coast region where we have completed 41 gross wells (21.4 net) in 46 attempts for a completion rate of 89%. Production from our onshore Texas Gulf Coast province represented 61% of our average daily production in 2004, up from 53% in 2002.

      During 2004, we completed 16 gross wells (10.3 net) in 19 attempts for a completion rate of 84% in this province. Ten of these wells were exploratory, nine were developmental and we operated 17 of the 19 wells that we drilled.

      During 2004, we spent $48.5 million on drilling, land and seismic in our onshore Texas Gulf Coast province. For 2005, we are currently planning to spend approximately $52.8 million on drilling, land and seismic. Approximately 17% of this will be allocated to land and seismic expenditures with the remaining 83% allocated to the drilling of wells and other development activities. Approximately $17 million of our planned drilling expenditures will be allocated to drill seven exploration wells with an average working interest of 64% and to drill and complete wells that were in progress at December 31, 2004. The remaining $26.8 million of our 2005 drilling expenditures will be allocated to drill ten development wells with an average working interest of 65% and other development drilling activities.

      Within the Gulf Coast, approximately 24% of our 2004 drilling capital expenditures were allocated to the Vicksburg trend and 27% were allocated to the Frio trend. In 2004, our development drilling was focused principally in the Vicksburg trend in Brooks County, Texas in our Home Run, Floyd Fault Block and Floyd South Fields. In addition, we significantly increased our working interest and net reserves in the Triple Crown Field with the successful completion of our Triple Crown North well, the D. J. Sullivan C #30. Our decision to drill the D. J. Sullivan C #30 late in 2004 coincided with the closing of a joint venture with an industry participant, where we were able to increase our working interest from 34% to 57.5% in 780 acres on the northeast side of our Diablo Project. Much of our exploratory activity in the Vicksburg trend has been driven by other similar joint ventures with our industry participant, which has substantial acreage holdings in the area. We expect to drill up to eight development wells in the Triple Crown North joint venture area of the Triple Crown Field over the next several years. We also expect to drill up to four development wells on acreage adjacent to our Triple Crown Field. Two additional joint ventures with the same industry participant resulted in two unsuccessful wells drilled in 2004. The Sullivan E #1 was drilled in early 2004 as part of a joint venture where we had the opportunity to earn an interest in 4,353 acres in an untested fault block on the southeast side of our Diablo Project. The D. J. Sullivan A #1 was drilled in late 2004 as part of a joint venture where we had the opportunity to earn an interest in approximately 1,000 acres on an untested Vicksburg structure several miles to the east of our Diablo Project. We do not anticipate drilling additional wells as part of either of these two joint ventures at the present time. However, we continue to have discussions with our industry participant about other exploratory joint venture opportunities in the area, and expect to continue to expand our activities in the trend.

      In total, we drilled six Vicksburg trend wells during 2004, including two exploratory and four development wells. For 2005, we currently plan to spend $14.7 million to drill five development wells in our Home Run, Floyd Fault Block and Triple Crown Fields, to drill and complete wells that were in progress at December 31, 2004 and for other development activities. We will retain an average working interest of 55% in these development wells.

      In the Frio trend, we made a new field discovery with the successful completion of our Appling Deep Field discovery well, the Sartwelle #3. The Sartwelle #3 was a deep Frio test in our Bayou Bengal project. Our Bayou Bengal project is a 131 square mile 3-D seismic project located primarily in Calhoun County, Texas that we completed in early 2004. We expect to drill up to six development wells in the Appling Deep Field over the next several years. Through year-end 2004, we had drilled a total of six wells in our Bayou Bengal project, with six wells planned for 2005. Two of these six planned 2005 wells will be deep, higher risk and higher reserve potential Frio tests similar to the Sartwelle #3. As was the case in

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2004, in 2005 we will continue to actively drill wells in our other existing Frio 3-D seismic projects including General Patton, Millennium and Jughole. We are currently drilling another of our higher risk and higher reserve potential Frio tests in our Millennium project area which is in the same area in which we discovered our Providence Field in 2001. We retain a 50% working interest in the Wyse #1, which will test the Lower Frio adjacent to the 75 Bcfe Rugely Field. Furthermore, in 2005 we intend to drill exploration wells in two of our recently completed 3-D seismic projects. The first project, our 158 square mile Alamo project, and the second project that began in late 2004 and completed in early 2005, our 120 square mile General Lee project, are both located in the same geographic region as our Bayou Bengal project. We have recently closed on a third new Frio 3-D seismic project, encompassing approximately 33,885 option acres located along the lower Texas Gulf Coast. We expect to begin interpreting 3-D seismic data from this project by the second quarter of 2005, and believe that it is likely that we will have additional drilling projects available in this area later in 2005.

      In total, we drilled 13 Frio trend wells during 2004, including eight exploratory and five development wells. For 2005, we have budgeted to spend $26.7 million to drill six exploration wells with an average working interest of 67%, and five development wells with an average working interest of 75%, to drill and complete wells that were in progress at December 31, 2004 and for other development activities.

Anadarko Basin

      The Anadarko Basin is located in northwest Oklahoma and the Texas Panhandle. We believe this prolific natural gas producing province offers a combination of lower risk exploration and development opportunities in shallower horizons, as well as higher reserve potential in the deeper sections that have been relatively under explored.

      We believe our drilling programs in the Anadarko Basin and West Texas generally provide us with longer life reserves and help to balance our drilling program in the prolific, but generally shorter reserve life, onshore Texas Gulf Coast province.

      The stratigraphic and structural objectives in the Anadarko Basin can provide excellent targets for 3-D seismic imaging. In addition, drilling economics in the Anadarko Basin are enhanced by the multi-pay nature of many of these prospects, with secondary or tertiary targets serving as either incremental value or as alternatives in the event the primary target zone is not productive. Our recent activity has been focused primarily in the Hunton, Springer Channel and Springer Bar trends. However, given the success of several our recent development wells in our Hobart Granite Wash trend in Hemphill County, Texas, developmental activity in this field could accelerate during the second half of 2005.

      Over the past three years approximately 33% of our total capital expenditures for drilling, land and seismic have been allocated to our Anadarko Basin region where we have completed 56 gross wells (17.4 net) in 60 attempts for a completion rate of 93%. We also have one exploration well, the Mills Ranch #2-98 that began drilling in 2004 and is currently in progress. Production from the Anadarko Basin represented 29% of our average daily production in 2004, up from 26% in 2002.

      During 2004, we completed 37 gross wells (10.8 net) in 38 attempts for a completion rate of 97%. Five of these wells were exploration wells and 33 were developmental. We operated 10 of the 38 wells that we drilled in the Anadarko Basin in 2004 and are the operator of the Mills Ranch #2-98.

      In total, we spent $30.9 million on drilling, land and seismic during 2004 in our Anadarko Basin province. For 2005, we are currently planning to spend approximately $27 million on drilling, land and seismic. Approximately $3.5 million of this will be allocated to land and seismic expenditures, with the remaining $23.5 million allocated to the drilling of wells and other development activities. Approximately $14.8 million of our planned drilling expenditures will be allocated to drill seven exploration wells with an average working interest of 46% and to drill and complete wells that were in progress at December 31, 2004. The remaining $8.7 million of our planned drilling expenditures will be allocated to drill ten development wells with an average working interest of 37% and to other development drilling activities. Furthermore, approximately $12.1 million of our 2005 drilling expenditures budgeted for our Anadarko

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Basin province are allocated to the Hunton trend, $5.9 million is allocated to the Springer trends and $4.5 million is allocated to the Granite Wash trend.

      Within the Anadarko Basin, approximately 45% of our 2004 capital expenditures were allocated to the Hunton trend, 11% to the Springer trends and 9% to the Granite Wash trend. Within our Hunton trend, our first development well drilled on the eastern end of the roughly five mile long Mills Ranch Field was the Mills Ranch #1-99S. In order to minimize drilling cost, the well was a reentry of a previously abandoned Arbuckle well. The well was spud in January 2004 and was targeting to drill through both the Hunton and Arbuckle formations, reaching an estimated total depth of 24,000’ in the second quarter. Unfortunately in May, after drilling into our primary Hunton pay interval, the drill pipe became stuck and the well had to be sidetracked, requiring us to re-drill approximately 3,000 feet. The sidetracking operation delayed the completion of the well until September and precluded us from reaching our secondary Arbuckle objective. The well was put on production in late September and initially produced at a gross rate of 8.7 MMcfe per day. However, production from the well has declined dramatically and at year-end 2004 the well was only producing 1.0 MMcfe per day. We are currently evaluating what options we have to enhance the performance of the well. A second Mills Ranch Field well, the Mills Ranch #2-98, was spud in November 2004 on the western side of the field where we have completed two prior Hunton wells. This well targets the Arbuckle and shallower potential pay intervals and is expected to reach total depth in the second quarter of 2005. At present, one additional Hunton/ Arbuckle well is scheduled for 2005. This well is a high risk and high reserve potential exploration test of another structure in the area. This well is expected to spud by mid-year and is estimated to reach total depth in the fourth quarter of 2005.

      In the Texas panhandle of the Anadarko Basin, we have drilled six recent wells to evaluate the economics of a potentially extensive drilling program in the Granite Wash formation. We have approximately 3,800 contiguous gross acres in the area. Adjacent acreage has and continues to experience extensive drilling by other operators. Most of this acreage has been developed on 40 acre spacing, although some acreage is being developed on 20 acre spacing. We are currently evaluating the results of the five most recently drilled Granite Wash wells, with the last two wells having experienced higher initial producing rates. We currently have three wells budgeted for the area in the second half of 2005. However, should results merit, we may accelerate development of the acreage during the second half of 2005. Development on 40 acre spacing would require up to 90 potential wells, while development on 20 acre spacing could require as many as 180 potential wells.

West Texas

      West Texas is predominantly an oil producing province with generally longer life reserves than that of the onshore Texas Gulf Coast. Our drilling activity in our West Texas province has been focused primarily in various carbonate reservoirs, including the Canyon Reef and Fusselman formations of the Horseshoe Atoll trend, the Canyon Reef of the Eastern Shelf, and the Mississippian Reef of the Hardeman Basin, at depths ranging from 7,000 to 13,000 feet.

      Over the past three years approximately 3% of our total capital expenditures for drilling, land and seismic have been allocated to our West Texas province where we have completed 12 gross wells (3.6 net) in 14 attempts for a completion rate of 86%. Production from West Texas represented 10% of our average daily production in 2004 down from 21% in 2002.

      During 2004 we completed one gross well (0.9 net) in two attempts for a completion rate of 50%. Both of these wells were exploration wells and were operated by us.

      In total, we spent $1.8 million on drilling, land and seismic during 2004 in our West Texas province. For 2005, we are currently planning to spend approximately $3.6 million on drilling, land and seismic. Approximately $600,000 of this will be allocated to land and seismic expenditures, $2.9 million will be allocated to drill three exploration wells with an average working interest of 82% and the remainder will be allocated to other development activities.

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      Given our large inventory of 3-D seismic data in West Texas, our strong historical results in the province, and the currently strong oil prices, we have begun to focus more of our resources on exploiting our West Texas asset base. We expect this more intense focus to positively impact our drilling program by late 2005 and 2006.

3-D Seismic Exploration

      We have accumulated 3-D seismic data covering approximately 10,464 square miles (6.7 million acres) in over 28 geologic trends in seven basins and seven states. We typically acquire 3-D seismic data in and around existing producing fields where we can benefit from the imaging of producing analog wells. These 3-D defined analogs, combined with our experience in drilling 651 wells in our 3-D project areas, provide us with a knowledge base to evaluate other potential geologic trends, 3-D seismic projects within these trends and prospective 3-D delineated drilling locations. Through our experience in the early and mid 1990’s, we developed an expertise in the selection of geologic trends that we believe are best suited for 3-D seismic exploration. In 1997 and 1998 we invested approximately $64 million in 3-D seismic and land in plays that we believed were providing optimal 3-D delineated drilling economics. Since 1998 we have continued to add to our 3-D seismic database within our core trends on a more conservative pace. We have used the experience that we have gained within our core trends to enhance the quality of subsequent projects in the same trend and other analogous trends, to lower finding and development costs, to compress project cycle times and to enhance our return on capital.

      Over the last fourteen years we have accumulated substantial experience exploring with 3-D seismic in a wide range of reservoir types and geologic trapping mechanisms. In addition, we typically acquire digital data bases for integration on our computer-aided exploration workstations, including digital land grids, well information, log curves, production information, geologic studies, geologic top data bases and existing 2-D seismic data. We use our knowledge base, local geological expertise and digital data bases integrated with 3-D seismic data to create maps of producing and potentially productive reservoirs. As such, we believe our 3-D generated maps are more accurate than previous reservoir maps (which generally are based on subsurface geological information and 2-D seismic surveys), enabling us to more precisely evaluate recoverable reserves and the economic feasibility of projects and drilling locations.

      Historically, we have acquired most of our raw 3-D seismic data using seismic acquisition vendors on either a proprietary basis or through alliances affording the alliance members the exclusive right to interpret and use data for extended periods of time. In addition, we have participated in non-proprietary group shoots of 3-D seismic data (commonly referred to as “spec data”) when we believe the expected full cycle project economics were justified, and we have exchanged certain interests in some of our non-core proprietary seismic data to gain access to additional 3-D seismic data. In most of our proprietary 3-D data acquisitions and alliances, we have selected the sites of projects, primarily guided by our knowledge and experience in the core provinces we explore, established and monitored the seismic parameters of each project for which data was shot, and typically selected the equipment that was used.

      Combining our geologic and geophysical expertise with a sophisticated land effort, we manage the majority of our projects from conception through 3-D acquisition, processing and interpretation and leasing. In addition, we manage the negotiation and drafting of virtually all of our geophysical exploration agreements, resulting in reduced contract risk and more consistent deal terms. Because we generate most of our projects, we can often control the size of the working interest that we retain as well as the selection of the operator and the non-operating participants. Consistent with our business strategy, we have increased the working interest we retain in our projects, based upon capital availability and perceived risk. Our average working interest in our 3-D seismic projects acquired during 1996, 1997 and 1998 was 37%, 67% and 80%, respectively. The 3-D seismic we acquired during 1999, 2000, 2001 and 2002 was primarily through the exchange of certain rights in some of our non-core 3-D seismic projects. Most of these exchanges did not include an industry participant, therefore we retained potentially all interest in any prospects generated from the newly acquired 3-D seismic data.

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      In early 2003, we acquired approximately 84 square miles of new proprietary 3-D seismic data in our General Patton Project located in the Frio trend of the Upper Texas Gulf Coast. We sold a working interest in this project to an industry participant on a promoted basis and thus retained a 50% working interest in the project. In 2003 and early 2004, we acquired approximately 75 square miles of non-proprietary and 56 square miles of new proprietary 3-D seismic data in our Bayou Bengal project, also located in the Frio trend of the Upper Texas Gulf Coast. We sold a working interest in Bayou Bengal to an industry participant on a promoted basis and retained a 75% working interest.

      During 2004, we added approximately 655 square miles of 3-D seismic data to our corporate database. During 2004, we acquired approximately 57 square miles of non-proprietary and 101 square miles of new proprietary 3-D seismic data in our Alamo project located in the Frio trend of the Upper Texas Gulf Coast. We sold a working interest in Alamo to an industry participant on a promoted basis and retained a 75% working interest in the project. In late 2004 and early 2005, we acquired approximately 120 square miles of new proprietary 3-D seismic data in our General Lee project, also located in the Frio trend of the Upper Texas Gulf Coast. We sold a working interest in General Lee to an industry participant on a promoted basis and retained a 75% working interest.

      See “ — Onshore Texas Gulf Coast,” “ — Anadarko Basin,” “ — West Texas,” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Commitments — Capital Expenditures” for additional discussion regarding 2005 seismic capital expenditures.

Title to Properties

      We believe we have satisfactory title, in all material respects, to substantially all of our producing properties in accordance with standards generally accepted in the oil and gas industry. Our properties are subject to royalty interests, standard liens incident to operating agreements, liens for current taxes and other burdens, which we believe do not materially interfere with the use of or affect the value of such properties. Our senior credit facility and senior subordinated notes are secured by first and second liens, respectively, against substantially all of our proved oil and natural gas properties. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Senior Credit Facility” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Commitments — Senior Subordinated Notes.”

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Oil and Natural Gas Reserves

      Our estimated total net proved reserves of oil and natural gas as of December 31, 2004, 2003 and 2002, pre-tax PV-10% value, standardized measure and the estimated future development cost attributable to these reserves as of those dates were as follows.

		At December 31,
		2004			2003			2002
Estimated Net Proved Reserves:
Oil (MBbls)			3,236			4,130			3,607
Natural gas (MMcf)			101,875			109,403			99,428
	Natural gas equivalent (MMcfe)		121,290			134,182			121,070
Proved developed reserves as a percentage of net proved reserves			50	%		50	%		46	%
Pre-tax PV-10% (in millions)		$	294.5		$	343.8		$	307.4
Standardized measure (in millions)			239.7			261.6			239.7
Estimated future development cost (in millions)			79.9			59.0			48.7
Base price used to calculate reserves(a):
Natural gas (per MMbtu)		$	6.19		$	5.83		$	4.74
Oil (per Bbl)			43.46			32.55			31.25

(a) These base prices were adjusted to reflect applicable transportation and quality differentials on a well-by-well basis to arrive at realized sales prices used to estimate our reserves at these dates.

      The reserve estimates reflected above were prepared by Cawley, Gillespie & Associates, Inc., our independent petroleum consultants, and are part of reports on our oil and natural gas properties prepared by Cawley, Gillespie. We do not report reserve information to any other government agency.

      In accordance with applicable requirements of the Securities and Exchange Commission, estimates of our net proved reserves and future net revenues are made using sales prices estimated to be in effect as of the date of such reserve estimates and are held constant throughout the life of the properties (except to the extent a contract specifically provides for escalation). Estimated quantities of net proved reserves and future net revenues there from are affected by oil and natural gas prices, which have fluctuated widely in recent years. There are numerous uncertainties inherent in estimating oil and natural gas reserves and their estimated values, including many factors beyond our control. The reserve data set forth in the Cawley, Gillespie report represents only estimates. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geologic interpretation and judgment. As a result, estimates of different engineers, including those used by us, may vary. In addition, estimates of reserves are subject to revision based upon actual production, results of future development and exploration activities, prevailing oil and natural gas prices, operating costs and other factors. The revisions may be material. Accordingly, reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered and are highly dependent upon the accuracy of the assumptions upon which they are based. Our estimated net proved reserves have not been filed with or included in reports to any federal agency. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors — We Are Subject To Uncertainties In Reserve Estimates And Future Net Cash Flows.”

      Estimates with respect to net proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations in the estimated reserves that may be substantial.

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Drilling Activities

      We drilled, or participated in the drilling of, the following number of wells during the periods indicated.

		Year Ended December 31,
		2004(a)				2003				2002(b)
		Gross		Net		Gross		Net		Gross		Net
Exploratory wells:
Natural gas			9		4.4		14		6.8		4		0.9
Oil			1		0.9		4		1.3		6		0.9
Non-productive			7		5.2		4		1.8		1		0.7
	Total		17		10.5		22		9.9		11		2.5
Development wells:
Natural gas			35		13.9		11		3.9		7		2.4
Oil			2		0.3		1		0.4		4		1.7
Non-productive			5		1.5		3		1.8		1		0.3
	Total		42		15.7		15		6.1		12		4.4

(a)	Excludes one (1.0 net) exploratory well that is currently drilling.
(b)	Excludes one (0.2 net) development well that is productive but is temporarily abandoned. There are no current plans to put this well on production.

      We do not own drilling rigs and the majority of our drilling activities have been conducted by independent contractors or by industry participant operators under standard drilling contracts.

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Productive Wells and Acreage

     Productive Wells

      The following table sets forth our ownership interest at December 31, 2004 in productive oil and natural gas wells in the areas indicated. Wells are classified as oil or natural gas wells according to their predominant production stream. Gross wells are the total number of producing wells in which we have an interest, and net wells are determined by multiplying gross wells by our average working interest.

		Natural Gas				Oil				Total
		Gross		Net		Gross		Net		Gross		Net
Onshore Texas Gulf Coast			56		23.2		20		4.8		76		28.0
Anadarko Basin			149		31.9		19		3.8		168		35.7
West Texas and other			13		1.6		76		23.5		89		25.1
	Total		218		56.7		115		32.1		333		88.8

      Productive wells consist of producing wells and wells capable of production, including wells waiting on pipeline connection. Wells that are completed in more than one producing horizon are counted as one well. Of the gross wells reported above, two had multiple completions.

     Acreage

      Undeveloped acreage includes leased acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas, regardless of whether or not such acreage contains proved reserves. The following table sets forth the approximate developed and undeveloped acreage that we held a leasehold interest in at December 31, 2004.

		Developed				Undeveloped				Total
		Gross		Net		Gross		Net		Gross		Net
Onshore Texas Gulf Coast			15,255		7,591		19,512		12,532		34,767		20,123
Anadarko Basin			50,091		27,270		26,133		14,397		76,224		41,667
West Texas			17,762		6,255		2,160		1,627		19,922		7,882
Other			2,732		967		—		—		2,732		967
	Total		85,840		42,083		47,805		28,556		133,645		70,639

      In addition, as of December 31, 2004, we also owned 2,509 gross and 1,826 net mineral acres.

      All the leases for the undeveloped acreage summarized in the preceding table will expire at the end of their respective primary terms unless the existing leases are renewed, production has been obtained from the acreage subject to the lease prior to that date, or some other “savings clause” is implicated. The following table sets forth the minimum remaining terms of leases for the gross and net undeveloped acreage.

		Acres Expiring
Twelve Months Ending:		Gross		Net
December 31, 2005			14,271		7,449
December 31, 2006			17,357		10,059
December 31, 2007			9,506		6,690
Thereafter			6,671		4,358
	Total		47,805		28,556

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      In addition, as of December 31, 2004, we had lease options and rights of first refusal to acquire additional acres. The following table sets forth the expiration year of our options and right of first refusal agreements and the gross and net acres associated with those options and right of first refusal agreements.

	Acres Expiring
Twelve Months Ending:	Gross		Net
December 31, 2005		62,638		55,767

Volumes, Prices and Production Costs

      The following table sets forth the production volumes, average prices received before hedging, average prices received after hedging and average production costs associated with our sale of oil and natural gas for the periods indicated.

		Year Ended December 31,
		2004			2003			2002
Production:
	Oil (MBbls)		573			720			701
	Natural gas (MMcf)		8,830			6,356			5,791
	Natural gas equivalent (MMcfe)		12,265			10,674			9,996
Average sales price per unit:
	Oil revenues (per Bbl)	$	40.13		$	30.79		$	25.17
	Effects of hedging activities (per Bbl)		(4.96	)		(2.62	)		(1.62	)
	Average price (per Bbl)	$	35.17		$	28.17		$	23.55
	Natural gas revenues (per Mcf)	$	6.05		$	5.68		$	3.33
	Effects of hedging activities (per Mcf)		(0.21	)		(0.76	)		(0.12	)
	Average price (per Mcf)	$	5.84		$	4.92		$	3.21
	Total oil and natural gas revenues (per Mcfe)	$	6.23		$	5.46		$	3.70
	Effects of hedging activities (per Mcfe)		(0.38	)		(0.63	)		(0.19	)
	Average price (per Mcfe)	$	5.85		$	4.83		$	3.51
Average production costs:
	Lease operating expenses (per Mcfe)	$	0.43		$	0.43		$	0.32
	Ad valorem taxes (per Mcfe)		0.07			0.06			0.06
	Production taxes (per Mcfe)		0.25			0.23			0.20

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Item 3. Legal Proceedings

      We are, from time to time, party to certain lawsuits and claims arising in the ordinary course of business. While the outcome of lawsuits and claims cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on our financial condition, results of operations or cash flows.

      On November 20, 2001, we filed a lawsuit in the District Court of Travis County, Texas, against Steve Massey Company, Inc. The Petition claims Massey furnished defective casing to us, which ultimately led to the casing failure of our Palmer 347 #5 well and the loss of the Palmer #5 as a producing well. In 2004, the parties agreed in principle to settle the case on terms favorable to us. We received approximately $440,000 as a result of this settlement. The amount of the settlement reduced capitalized well cost. In addition, Massey relinquished its $445,819 counterclaim.

      On October 8, 2002, relatives of a contractor’s employee filed a wrongful death action against us and three other contractors in the District Court of Matagorda County, Texas in connection with the employee’s death at our Burkhart #1-R location. On March 23, 2004, a jury determined that we had no liability in the accidental death of the contractor’s employee. The trial judge, however, granted plaintiffs’ motion for a new trial. We expect the new trial to take place in June 2005. We believe we have adequate insurance to cover any potential damage award (subject to a $5,000 deductible). At this point in time, we cannot predict the outcome of this case.

      In September 2002, we filed suit in the District Court of Matagorda County, Texas, against one of our contractors in connection with the drilling of the Burkhart #1-R well, claiming that contractor breached its contract with us and negligently performed services on the well. We believe the contractor’s actions damaged us by approximately $650,000. The contractor counterclaimed, claiming it is entitled to recover approximately $315,000 for services rendered. In April 2004, the case was settled, resulting in a payment by the contractor to our co-participants and us of $325,000. In addition, the contractor relinquished its counterclaim against us. Based on the amount of the settlement, the additional costs that were covered by insurance, and the insurer being subrogated to our claim, we did not receive any incremental recovery as a result of the settlement.

      Prior to drilling, the operator of the Stonehocker #1 well disputed our ownership in the well. In March 2003, a Motion to Determine Election was filed with the Oklahoma Corporation Commission. In January 2004, an Administrative Law Judge with the Oklahoma Corporation Commission ruled in our favor. The operator of the Stonehocker #1 appealed the ruling and the Appellate Referee with the Oklahoma Corporation Commission affirmed the original ruling in March 2004. The full Commission Panel reviewed the reports of the Referee and the original Administrative Law Judge and affirmed those rulings. The operator then filed an appeal with the Oklahoma Supreme Court. In January 2005, the parties settled the dispute. The operator agreed to recognize our full interest in the Stonehocker well, and also agreed to reverse certain charges made under the operating agreements of six additional wells in which we own an interest.

      A company that relinquished its ownership interest in the Nold #1S well as a result of a non-consent election in the re-completion of the well asserted that it did not relinquish its entire interest, but rather became subject only to a 400 percent payout provision. In November 2003, this company filed a lawsuit in the District Court of Brazoria County, Texas, against us for breach of contract. If the suit was successful, it could have resulted in a judgment of as much as $700,000. In April 2004, we settled the case, agreeing to pay the company $350,000 in return for the company’s assignment of all its right, title and interest in the unit for the well.

      In December 2003, we filed a lawsuit in the United States District Court for the Western District of Texas against another company and a former employee concerning the defendants’ misappropriation of our trade secrets and breach of confidentiality obligations. Defendants denied any wrongdoing and asserted a counterclaim against us for alleged tortuous interference with an existing business relationship between the company and its employee. In April 2004, we settled the case. The company agreed not to compete

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against us in a specified area for two years, assigned us a small overriding royalty in three tracts, paid us $50,000, and released its counterclaim.

      As of December 31, 2004, there are no known environmental or other regulatory matters related to our operations that are reasonably expected to result in a material liability to us. Compliance with environmental laws and regulations has not had, and is not expected to have, a material adverse effect on our capital expenditures.

Item 4. Submission of Matters to a Vote of Security Holders

      No matter was submitted to a vote of our security holders during the fourth quarter of 2004.

Executive Officers of the Registrant

      Pursuant to Instruction 3 to Item 401(b) of the Regulation S-K and General Instruction G(3) to Form 10-K, the following information is included in Part I of this report.

      The following are our executive officers as of March 31, 2005.

Name	Age		Position
Ben M. Brigham		45	Chief Executive Officer, President and Chairman
Eugene B. Shepherd, Jr		46	Executive Vice President and Chief Financial Officer
David T. Brigham		44	Executive Vice President — Land and Administration and Director
A. Lance Langford		42	Executive Vice President — Operations
Jeffery E. Larson		46	Executive Vice President — Exploration

      Ben M. “Bud” Brigham has served as our Chief Executive Officer, President and Chairman of the Board since we were founded in 1990. From 1984 to 1990, Mr. Brigham served as an exploration geophysicist with Rosewood Resources, an independent oil and gas exploration and production company. Mr. Brigham began his career in Houston as a seismic data processing geophysicist for Western Geophysical, Inc. a provider of 3-D seismic services, after earning his B.S. in Geophysics from the University of Texas at Austin. Mr. Brigham is the brother of David T. Brigham, Executive Vice President — Land and Administration.

      Eugene B. Shepherd, Jr. has served as Executive Vice President since September 2003 and Chief Financial Officer since June 2002. Mr. Shepherd has approximately 20 years of financial and operational experience in the energy industry. Prior to joining us, Mr. Shepherd served as Integrated Energy Managing Director at ABN AMRO Bank, a large European bank, where he executed merger and acquisition advisory, capital markets and syndicated loan transactions for energy companies. From July 1998 to August 2000, Mr. Shepherd was an investment banking Director for Prudential Securities Incorporated, where he executed a wide range of transactions for energy companies. Prior to joining Prudential Securities Incorporated, Mr. Shepherd served as an investment banker with Stephens Inc. from 1990 to June 1998 and with Merrill Lynch Capital Markets from 1986 to 1990. Prior to joining Merrill Lynch Capital Markets, Mr. Shepherd worked for over four years as a petroleum engineer for both Amoco Production Company and the Railroad Commission of Texas. He has a B.S. in Petroleum Engineering and an MBA, both from the University of Texas at Austin.

      David T. Brigham joined us in 1992 and has served as a Director since May 2003 and as Executive Vice President — Land and Administration since June 2002. Mr. Brigham served as Senior Vice President — Land and Administration from March 2001 to June 2002, Vice President — Land and Administration from February 1998 to March 2001, as Vice President — Land and Legal from 1994 until February 1998 and as Corporate Secretary from February 1998 to September 2002. From 1987 to 1992, Mr. Brigham was an oil and gas attorney with Worsham, Forsythe, Sampels & Wooldridge. Before attending law school, Mr. Brigham was a landman for Wagner & Brown Oil and Gas Producers, an independent oil and gas exploration and production company. Mr. Brigham holds a B.B.A. in Petroleum

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Land Management from the University of Texas and a J.D. from Texas Tech School of Law. Mr. Brigham is the brother of Ben M. Brigham, Chief Executive Officer, President and Chairman of the Board.

      A. Lance Langford joined us in 1995 as Manager of Operations and served as Vice President — Operations from January 1997 to March 2001, served as Senior Vice President — Operations from March 2001 to September 2003 and has served as Executive Vice President — Operations since September 2003. From 1987 to 1995, Mr. Langford served in various engineering capacities with Meridian Oil Inc., handling a variety of reservoir, production and drilling responsibilities. Mr. Langford holds a B.S. in Petroleum Engineering from Texas Tech University.

      Jeffery E. Larson joined us in 1997 and was Vice President — Exploration from August 1999 to March 2001, Senior Vice President — Exploration from March 2001 to September 2003 and has served as Executive Vice President — Exploration since September 2003. Prior to joining us, Mr. Larson was an explorationist in the Offshore Department of Burlington Resources, a large independent exploration company, where he was responsible for generating exploration and development drilling opportunities. Mr. Larson worked at Burlington from 1990 to 1997 in various roles of responsibility. Prior to Burlington, Mr. Larson spent five years at Exxon as a Production Geologist and Research Scientist. He has a B.S. in Earth Science from St. Cloud State University in Minnesota and a M.S. in Geology from the University of Montana.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock and Dividend Policy

      Our common stock commenced trading on the Nasdaq National Market on May 8, 1997 under the symbol “BEXP.” The following table sets forth the high and low intra-day sales prices per share of our common stock for the periods indicated on the Nasdaq National Market for the periods indicated. The sales information below reflects inter-dealer prices, without retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions.

		High		Low
2003:
	First Quarter	$	6.000		4.400
	Second Quarter		5.740		4.500
	Third Quarter		7.200		4.750
	Fourth Quarter		8.410		6.260
2004:
	First Quarter	$	8.630	$	6.600
	Second Quarter		10.040		7.341
	Third Quarter		9.890		7.560
	Fourth Quarter		10.050		7.720

      The closing market price of our common stock on March 30, 2005 was $8.89 per share. As of March 30, 2005, there were an estimated 118 record owners of our common stock.

      No dividends have been declared or paid on our common stock to date. We intend to retain all future earnings for the development of our business. Our senior credit facility, senior subordinated notes and Series A preferred stock restrict our ability to pay dividends on our common stock.

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      We are obligated to pay dividends on our Series A preferred stock. At our option, these dividends may be paid in cash at a rate of 6% per annum or paid in kind through the issuance of additional shares of preferred stock in lieu of cash at a rate of 8% per annum. Our option to pay dividends in kind expires in October 2005. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Commitments — Mandatorily Redeemable Preferred Stock.”

Securities Authorized for Issuance under Equity Compensation Plans

      The following table includes information regarding our equity compensation plans as of the year ended December 31, 2004.

		Number of				Number of Securities
		Securities to be				Remaining Available
		Issued upon		Weighted-Average		for Future Issuance
		Exercise of		Price of		Under Equity
Plan Category		Outstanding Options		Outstanding Options		Compensation Plans
Equity compensation plans approved by security holders(a)			2,676,100	$	6.01		1,730,850
Equity compensation plans not approved by security holders			—		—		—
	Total		2,676,100	$	6.01		1,730,850

(a) Does not include 325,000 shares of restricted stock at December 31, 2004.

Issuer Purchases of Equity Securities

      In 2004, 2003 and 2002 we elected to allow employees to deliver shares of vested restricted stock with a fair market value equal to their federal, state and local tax withholding amounts on the date of issue in lieu of cash payment.

	Total Number of		Average Price
Period	Shares Purchased		Paid per Share
October 2004		15,790	$	9.205
January 2004		19,596		7.970
October 2003		16,351		6.705
October 2002		18,665		4.030

Recent Issuance of Unregistered Securities

     Common Stock

      All shares of common stock issued in the following transactions were exempted from registration under section 4(2) of the Securities Act of 1933.

      In December 2002, we issued 550,000 unregistered shares of our common stock to Shell Capital. The common stock was issued in exchange for Shell Capital’s warrant position, including 1,250,000 warrants associated with our senior subordinated notes facility, and to terminate its right to convert $30 million of our senior credit facility into 5,480,769 shares of our common stock. Shell Capital subsequently sold these shares in our common stock sale in September 2003. We received no proceeds from the sale of the common stock.

      In December 2002, we issued 243,902 unregistered shares of our common stock. The common stock was issued connection with the cash exercise of warrants to purchase 243,902 shares of our common stock for $2.5625 per share. We received cash proceeds of $625,000 from the exercise. The warrants exercised represented a portion of the warrants that were issued in connection with our sale of 731,707 shares of our common stock in February 2000 to a group of institutional investors. This group of investors was led by affiliates of two members of our then current Board of Directors. At the time the warrants were exercised,

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one of these two board members was no longer a member of our board. The remaining warrants were exercised in February 2003.

      In February 2003, we issued 248,028 unregistered shares of our common stock. The common stock was issued in connection with a cashless exercise of warrants to purchase 487,805 shares of our common stock for $2.5625 per share. We received no proceeds from the warrant exercise. The warrants exercised represented a portion of the warrants that were issued in connection with our sale of 731,707 shares of our common stock in February 2000 to a group of institutional investors. This group of investors was led by affiliates of two members of our then current Board of Directors. At the time the warrants were exercised, one of these two board members was no longer a member of our board.

      In June 2003, we issued 408,928 unregistered shares of our common stock to the Bank of Montreal. The common stock was issued to the Bank of Montreal in connection with its cashless exercise of warrants to purchase 661,538 shares of our common stock for $2.02 per share. We received no proceeds from the warrant exercise. The warrants were issued as consideration for an amendment to a previous senior credit facility in July 1999. The original warrant exercise price of $2.25 per share was reset to $2.02 in February 2000 in connection with an amendment to a previous senior credit facility. The Bank of Montreal subsequently sold these shares in our common stock sale in September 2003. We received no proceeds from the sale of the common stock.

      In June 2003, we issued 206,982 unregistered shares of our common stock to Société Générale. The common stock was issued to Société Générale in connection with its cashless exercise of warrants to purchase 338,462 shares of our common stock for $2.02 per share. We received no proceeds from the warrant exercise. The warrants were issued as consideration for an amendment to a previous senior credit facility in July 1999. The original warrant exercise price of $2.25 per share was reset to $2.02 in February 2000 in connection with an amendment to a previous senior credit facility. Société Générale subsequently sold these shares in our common stock sale in September 2003. We received no proceeds from the sale of the common stock.

      In November 2003, we issued 6,666,667 unregistered shares of our common stock to CSFB Private Equity. The common stock was issued to CSFB Private Equity in connection with its exercise of warrants to purchase 6,666,667 shares of our common stock for $3.00 per share. Pursuant to the warrant agreement, we required CSFB Private Equity to exercise the warrants as the average price of our common stock closed above $5.00 per share each day for 60 consecutive days. CSFB Private Equity elected to use 1,000,002 shares of Series A preferred stock to pay the $20 million exercise price. The warrants were issued in connection with our sale of $20 million of Series A — Tranche 1 preferred stock to CSFB Private Equity in November 2000.

      In December 2003, we issued 2,105,263 unregistered shares of our common stock to CSFB Private Equity. The common stock was issued to CSFB Private Equity in connection with its exercise of warrants to purchase 2,105,263 shares of our common stock for $4.35 per share. The original exercise price for the warrants was $4.75, but was reset in December 2002, in connection with the issuance of our Series B preferred stock. Pursuant to the warrant agreement, we required CSFB Private Equity to exercise the warrants as our stock price averaged at least $6.525 (150% of the exercise price of the warrants) for 60 consecutive trading days. CSFB Private Equity elected to use 457,898 shares of Series A preferred stock to pay the $9.2 million exercise price and we received no proceeds from the warrant exercise. The warrants were issued in connection with our sale of $10 million of Series A — Tranche 2 preferred stock to CSFB Private Equity in March 2001.

      In December 2003, we issued 2,298,850 unregistered shares of our common stock to CSFB Private Equity. The common stock was issued to CSFB Private Equity in connection with its exercise of warrants to purchase 2,298,850 shares of our common stock for $4.35 per share. Pursuant to the warrant agreement, we required CSFB Private Equity to exercise the warrants as our stock price averaged at least $6.525 (150% of the exercise price of the warrants) for 60 consecutive trading days. CSFB Private Equity elected to use 500,002 shares of Series B preferred stock to pay the $10 million exercise price and we received no proceeds from the warrant exercise. The warrants were issued in connection with our sale of $10 million of

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Series B preferred stock to CSFB Private Equity in December 2002. See “ — Mandatorily Redeemable Preferred Stock.”

     Mandatorily Redeemable Preferred Stock

      All shares of mandatorily redeemable preferred stock issued in the following transactions were exempted from registration under section 4(2) of the Securities Act of 1933.

      In December 2002, we issued to CSFB Private Equity 500,000 shares of our Series B preferred stock with a stated value of $20.00 per share. Net proceeds from the offering were $9.4 million and were used to reduce borrowings under our senior credit facility and to fund our drilling program and working capital requirements. The Series B preferred stock had terms similar to our previously issued Series A preferred stock. We were required to pay dividends on our Series B preferred stock at a rate of 6% per annum if paid in cash or 8% per annum if paid in kind through the issuance of additional shares of preferred stock in lieu of cash. Our option to pay dividends in kind would have expired in December 2007. In connection with the issuance of the Series B preferred stock, we issued to CSFB Private Equity warrants to purchase 2,298,851 shares of our common stock at an exercise price of $4.35 per share. To exercise the warrants, CSFB Private Equity had the option to use either cash or shares of our Series B preferred stock with an aggregate value equal to the exercise price. In December 2003, CSFB Private Equity elected to use 500,002 shares of Series B preferred stock to pay the $10 million warrant exercise price. See “— Common Stock.” In addition, pursuant to the terms of the Series B preferred stock we paid CSFB Private Equity approximately $704,000 to redeem the shares of Series B preferred stock that remained outstanding after the exercise. In June 2004, we filed a Certificate of Elimination to eliminate our Series B preferred stock.

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Item 6. Selected Consolidated Financial Data

      This section presents our selected consolidated financial data and should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included in “Item 8. Financial Statements and Supplementary Data.” The selected consolidated financial data in this section is not intended to replace the consolidated financial statements. The information for the years from 2000 until 2003 has been restated. For a further discussion of this restatement and the restatement amounts, see “Item 8. Financial Statements and Supplementary Data — Note 2.” See the notes to the table below for the impact of this restatement on 2001 and 2000.

      We derived the statement of operations data and statement of cash flows data for the years ended December 31, 2004, 2003 and 2002, and balance sheet data as of December 31, 2004 and 2003 from the audited consolidated financial statements included in this report. We derived the statement of operations data and statement of cash flows data for the years ended December 31, 2001 and 2000 and the balance sheet data as of December 31, 2002, 2001 and 2000, from our accounting books and records.

				Year Ended December 31,
				2004			2003			2002			2001			2000
							Restated(1)			Restated(1)			Restated(1)(2)			Restated(1)(2)
				(In thousands, except per share information)
Statement of Operations Data:
Oil and natural gas sales				$	71,713		$	51,545		$	35,100		$	32,293		$	19,143
Other revenues					515			132			76			255			69
		Total revenues			72,228			51,677			35,176			32,548			19,212
Lease operating expenses					6,173			5,200			3,759			3,486			2,139
Production taxes					3,107			2,477			1,977			1,511			1,786
General and administrative expenses					5,392			4,500			4,971			3,638			3,100
Depletion of oil and natural gas properties					23,844			16,819			14,694			13,225			7,601
Depreciation and amortization					722			629			440			677			620
Accretion of discount on asset retirement obligations					159			142			—			—			—
		Total costs and expenses			39,397			29,767			25,841			22,537			15,246
			Operating income (loss)		32,831			21,910			9,335			10,011			3,966
Other income (expense)
	Interest expense, net				(3,144	)		(4,815	)		(6,238	)		(6,681	)		(9,906	)
	Interest income				84			45			119			264			108
	Other income (expense)				742			(601	)		(310	)		8,080			(9,504	)
	Debt conversion expense				—			—			(630	)		—			—
	Gain on refinancing of debt				—			—			—			—			32,267
		Total other income (expense)			(2,318	)		(5,371	)		(7,059	)		1,663			12,965
Income (loss) before income taxes and cumulative effect of change in accounting principle				$	30,513		$	16,539		$	2,276		$	11,674		$	16,931
Income tax benefit (expense)					(10,863	)		1,223			—			—			—
		Income (loss) before cumulative effect of change in accounting principle			19,650			17,762			2,276			11,674			16,931
Cumulative effect of change in accounting principle					—			268			—			—			—
		Net income (loss)			19,650			18,030			2,276			11,674			16,931
Preferred dividend and accretion					—			3,448			2,952			2,450			275
		Net income (loss) available to common stockholders		$	19,650		$	14,582		$	(676	)	$	9,224		$	16,656
Net income (loss) per share before cumulative effect of change in accounting principle
	Basic			$	0.49		$	0.62		$	(0.04	)	$	0.58		$	1.03
	Diluted				0.47			0.51			(0.04	)		0.44			1.03
Weighted average shares outstanding
	Basic				40,445			23,363			16,138			15,988			16,241
	Diluted				41,616			34,354			16,138			28,205			16,241

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		At December 31,
		2004			2003			2002			2001(2)			2000(2)
		(In thousands)
Statement of Cash Flows Data:
Net cash provided (used) by:
	Operating activities	$	56,381		$	41,691		$	28,973		$	18,922		$	(4,635	)
	Investing activities		(84,645	)		(46,089	)		(27,206	)		(33,571	)		(26,071	)
	Financing activities		24,766			(5,141	)		8,439			18,924			28,801
Balance Sheet Data:
Cash and cash equivalents		$	2,281		$	5,779		$	15,318		$	5,112		$	837
Oil and natural gas properties, net (restated)(1)(2)			261,979			198,490			166,006			153,017			130,630
Total assets (restated)(1)(2)			286,307			224,982			203,085			174,201			148,051
Long-term debt			41,000			39,000			81,797			91,721			82,000
Series A preferred stock, mandatorily redeemable			9,520			8,794			19,540			16,614			8,558
Series B preferred stock, mandatorily redeemable			—			—			4,777			—			—
Total stockholders’ equity (restated)(1)(2)			183,276			139,111			62,775			50,727			35,897

(1)

The historical financial information pertaining to depletion expense and accumulated depletion that are a part of our net proved oil and natural gas properties has been restated. The total cumulative impact of the restatement was an increase of our previously reported stockholders’ equity as of September 30, 2004 (the most recent balance sheet filed) of approximately $676,000. The cumulative impact includes an increase to beginning stockholders’ equity as of January 1, 2002 of approximately $1,126,000. For a further discussion of the impact of the restatement on our selected financial information, see “Item 8. Financial Statements and Supplementary Data — Note 2 and “Item 9A. Controls and Procedures.”

(2)

The impacts of the historical restatement for the year ended December 31, 2001 were a decrease in earnings before and after income taxes of approximately $14,000 and increases to depletion expense and accumulated depletion of $14,000. Basic and diluted earnings per share were unchanged for the year ended December 31, 2001. The impacts of the historical restatement for the year ended December 31, 2000 were an increase in earnings before and after income taxes of approximately $320,000, basic earnings per share of $0.02, diluted earnings per share of $0.02, and decreases to depletion expense and accumulated depletion of $320,000.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      Statements in the following discussion may be forward-looking and involve risk and uncertainty. The following discussion should be read in conjunction with our Consolidated Financial Statements and Notes hereto. We utilize the full cost method of accounting for our proved oil and natural gas properties included in our consolidated financial statements. During March 2005, in connection with the preparation of our consolidated financial statements for the year ended December 31, 2004, we evaluated the manner in which we historically accounted for depletion expense associated with our oil and natural gas properties. Historically, we have calculated a depletion rate at the end of each period within the year based on our updated reserve estimate. This depletion rate has then been retroactively applied to year-to-date production with the adjustment to previously recorded depletion expense recorded in the current quarter. We determined that the revised depletion rate should have been applied on a prospective basis to production in the most current quarterly period only. Therefore, we determined we had not properly accounted for depletion expense and related accumulated depletion that are a part of our net proved oil and natural gas properties. As a result of this conclusion, we have restated previously issued financial statements for the years ended December 31, 2003 and 2002, and reduced our accumulated deficit by $1,126,000 as of January 1, 2002 to reflect the impact of the revised method of depletion expense for prior years. The total cumulative impact of the restatement was an increase of our previously reported stockholders’ equity as of September 30, 2004 (the most recent balance sheet filed) of approximately $676,000. These restated amounts have been reflected only in this Annual Report on Form 10-K, and we did not revise our historically filed annual and quarterly reports for the impacts of the restatement. Consequently, you should not rely on historical information contained in our prior filings since this filing replaces and revises our historically reported amounts as further discussed in “Item 8. Financial Statements and Supplementary Data — Note 2.”

Overview of Our Business

      We are an independent exploration and production company that applies 3-D seismic imaging and other advanced technologies to systematically explore for and develop onshore oil and natural gas reserves in the United States. Our activities are concentrated in the onshore Texas Gulf Coast, the Anadarko Basin and West Texas, which are areas with known hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs and the skills of our technical staff.

      Our principal business is the generation of drilling prospects in our core provinces, the drilling of those prospects and, if successful, the subsequent completion and production of the resulting oil or natural gas well. We do not have a history of aggressively competing for acquisition opportunities, although we regularly review such opportunities. We believe that we can achieve a better and more predictable rate of return by focusing our activities on prospect generation, drilling and producing activities.

Critical Accounting Policies

      The establishment and consistent application of accounting policies is a vital component of accurately and fairly presenting our consolidated financial statements in accordance with generally accepted accounting principles (GAAP), as well as ensuring compliance with applicable laws and regulations governing financial reporting. While there are rarely alternative methods or rules from which to select in establishing accounting and financial reporting policies, proper application often involves significant judgment regarding a given set of facts and circumstances and a complex series of decisions.

Oil and Gas Reserves

      Evaluations of oil and gas reserves are important to the management of these assets and are also used in the determination of unit-of-production depletion rates and impairment evaluations. Oil and gas reserves are divided between proved and unproved reserves. Proved reserves are the estimated quantities of natural gas, natural gas liquids and oil that geological and engineering data demonstrate with reasonable certainty

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to be recoverable in futures years from known reservoirs under existing economic and operating conditions. Unproved reserves are those with less than reasonable certainty of recoverability.

      Proven reserves are classified as (1) proven developed; (2) proven developed not producing; or (3) proven undeveloped. Proven developed not producing and undeveloped reserves will be reclassified to the proven developed category as new wells are drilled, existing wells are recompleted, and/or facilities are put in place for the gathering and transportation of production.

      Although we are reasonably certain that proved reserves will be produced, the timing and ultimate recovery can be affected by a number of factors including reservoir performance, regulatory approvals and significant changes in projections of natural gas and oil prices.

      Revisions in previously estimated quantities of proved reserves can include upward or downward changes due to the evaluation of new or already existing geologic, reservoir or production data from wells. Revisions can also result from changes in performance of enhanced recovery projects, facility capacity, or natural gas and oil prices.

Property and Equipment

      The method of accounting for natural gas and oil properties determines what costs are capitalized and how these costs are ultimately matched with revenues and expensed.

      We use the “full cost” method of accounting for oil and natural gas properties. Under this method substantially all costs associated with natural gas and oil exploration and development activities are capitalized, including costs for individual exploration projects that do not directly result in the discovery of hydrocarbon reserves that can be economically recovered. A portion of the payroll, interest, and other internal costs we incur for the purpose of finding hydrocarbon reserves are also capitalized.

      Full cost pool amounts associated with properties that have been evaluated through drilling or seismic analysis are depleted using the units of production method. The depletion expense per unit of production is the ratio of unamortized historical and estimated future development costs to proven hydrocarbon reserve volumes. Estimation of hydrocarbon reserves relies on professional judgment and use of factors that cannot be precisely determined. Subsequent reserve estimates materially different from those reported would change the depletion expense recognized during the future reporting period. For the year ended December 31, 2004, our depletion expense per unit of production was $1.94 per Mcfe. A change of 1,000,000 Mcfe in our estimated net proved reserves at December 31, 2004, would result in a $0.02 per Mcfe change in our per unit depletion expense and a $368,000 change in our pre-tax net income.

      To the extent costs capitalized in the full cost pool (net of depreciation, depletion and amortization and related deferred taxes) exceed the present value (using a 10% discount rate and based on period-end hedge adjusted oil and natural gas prices) of estimated future net cash flows from proved oil and natural gas reserves plus the capitalized cost of unproved properties, such costs are charged to operations as a reduction of the carrying value of oil and natural gas properties, or a “capitalized ceiling impairment” charge. The risk that we will be required to write down the carrying value of our oil and natural gas properties increases when oil and natural gas prices are depressed, even if the low prices are temporary. In addition, capitalized ceiling impairment charges may occur if we experience poor drilling results or estimations of proved reserves are substantially reduced.

      A capitalized ceiling impairment is a reduction in earnings that does not impact cash flows, but does impact operating income and stockholders’ equity. Once recognized, a capitalized ceiling impairment charge to oil and natural gas properties cannot be reversed at a later date. No assurance can be given that we will not experience a capitalized ceiling impairment charge in future periods. In addition, capitalized ceiling impairment charges may occur if estimates of proved hydrocarbon reserves are substantially reduced or estimates of future development costs increase significantly. See “— Risk Factors — Exploratory Drilling Is A Speculative Activity That May Not Result In Commercially Productive Reserves And May Require Expenditures In Excess Of Budgeted Amounts,” “— Risk Factors — The Failure To

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Replace Reserves In The Future Would Adversely Affect Our Production And Cash Flows” and “— Risk Factors — We Are Subject To Uncertainties In Reserve Estimates And Future Net Cash Flows.”

      We use the “full cost” instead of the “successful efforts” method because it regards all costs incurred in the acquisition, exploration and development activities as integral to the results of those activities as a whole, and therefore associated with our proved reserves. Under the “successful efforts” method, significant costs such as the acquisition of 3-D seismic data would be expensed as incurred rather than amortized over the life of any natural gas and oil reserves discovered through these activities.

Asset Retirement Obligations

      We have significant obligations to plug and abandon oil and natural gas wells and related equipment. Liabilities for asset retirement obligations are recorded at fair value in the period incurred. The related asset value is increased by the same amount. Asset retirement costs included in the carrying amount of the related asset are subsequently allocated to expense as part of our depletion calculation. See “— Property and Equipment.” Additionally, increases in the discounted asset retirement liability resulting from the passage of time are reflected as accretion of discount on asset retirement obligations expense in the Consolidated Statement of Income.

      Estimating future asset retirement obligations requires us to make estimates and judgments regarding timing, existence of a liability, as well as what constitutes adequate restoration. We use the present value of estimated cash flows related to our asset retirement obligations to determine the fair value. Present value calculations inherently incorporate numerous assumptions and judgments. These include the ultimate retirement and restoration costs, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the present value of the existing asset retirement obligation liability, a corresponding adjustment will be made to the carrying cost of the related asset.

Income Taxes

      Deferred tax assets are recognized for temporary differences in financial statement and tax basis amounts that will result in deductible amounts and carry-forwards in future years. Deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years. Deferred tax assets and liabilities are measured using enacted tax law and tax rate(s) for the year in which we expect the temporary differences to be deducted or settled. The effect of a change in tax law or rates on the valuation of deferred tax assets and liabilities is recognized in income in the period of enactment. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

      Estimating the amount of the valuation allowance is dependent on estimates of future taxable income, alternative minimum tax income, and changes in stockholder ownership that would trigger limits on use of net operating losses under Internal Revenue Code Section 382.

      We have a significant deferred tax asset associated with net operating loss carryforwards (NOLs). It is more likely than not that we will use these NOLs to offset current tax liabilities in future years. Our NOLs are more fully described in “Item 8. Financial Statements and Supplementary Data — Note 9.”

Revenue Recognition

      We derive revenue primarily from the sale of produced natural gas and oil, hence our revenue recognition policy for these sales is significant.

      We recognize crude oil revenue using the sales method of accounting. Under this method, revenue is recognized when oil is delivered and title transfers.

      We recognize natural gas revenue using the entitlements method of accounting. Under this method, revenue is recognized based on our entitled ownership percentage of sales of natural gas delivered to

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purchasers. Gas imbalances occur when we sell more or less than our entitled ownership percentage of total natural gas production. When we receive less than our entitled share, a receivable is recorded. When we receive more than our entitled share, a liability is recorded.

      Settlements for hydrocarbon sales can occur up to two months after the end of the month in which the oil, gas or other hydrocarbon products were produced. We estimate and accrue for the value of these sales using information available at the time financial statements are generated. Differences are reflected in the accounting period that payments are received from the purchaser.

Derivative Instruments and Hedging Activities

      We use derivative instruments to manage market risks resulting from fluctuations in commodity prices of natural gas and crude oil. We periodically enter into commodity contracts, including price swaps, caps and floors, which require payments to (or receipts from) counterparties based on the differential between a fixed price and a variable price for a fixed quantity of natural gas or crude oil without the exchange of underlying volumes. The notional amounts of these financial instruments are based on expected production from existing wells.

      We similarly use derivative instruments to manage risks associated with interest rate fluctuations on long term debt. During 2003 we entered into an interest rate swap to convert the floating interest rate on our senior subordinated notes to a fixed interest rate to reduce our exposure to potentially higher interest rates in the future. The notional amount of this hedge is equal to the amount of senior subordinated notes outstanding, and is more fully described in “Item 8. Financial Statements and Supplementary Data — Note 5” and “Item 8. Financial Statements and Supplementary Data — Note 12.”

      In accordance with Financial Accounting Standards Board (FASB) requirements SFAS 133, as amended, all derivative instruments are recorded on the balance sheet at fair value and changes in the fair value of the derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as a hedge transaction, and depending on the type of hedge transaction. Our derivative contracts are cash flow hedge transactions in which we are hedging the variability of cash flow related to a forecasted transaction. Changes in the fair value of these derivative instruments are reported in other comprehensive income and reclassified as earnings in the period(s) in which earnings are impacted by the variability of the cash flow of the hedged item. We assess the effectiveness of hedging transactions every three months, consistent with documented risk management strategy for the particular hedging relationship. Changes in the fair value of the ineffective portion of cash flow hedges are included in earnings.

Use of Estimates

      The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect reported assets, liabilities, revenues, expenses, and some narrative disclosures. Hydrocarbon reserves, future development costs, and certain hydrocarbon production expense and revenue estimates are the most critical to our financial statements.

New Accounting Pronouncements

      In September 2004, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 106 (SAB 106) which provides guidance regarding the interaction of SFAS 143 with the calculation of depletion and the full cost ceiling test of oil and gas properties under the full cost accounting rules of the SEC. The guidance provided in SAB 106 is not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

      In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, ”Share-Based Payment” (SFAS 123R), which is a revision of SFAS 123 and supersedes APB Opinion No. 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock

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options, to be valued at fair value on the date of grant, and to be expensed over the applicable vesting period. Pro forma disclosure of the income statement effects of share-based payments is no longer an alternative. SFAS 123R is effective for all stock-based awards granted on or after July 1, 2005. In addition, companies must also recognize compensation expense related to any awards that are not fully vested as of the effective date. Compensation expense for the unvested awards will be measured based on the fair value of the awards previously calculated in developing the pro forma disclosures in accordance with the provisions of SFAS 123. We are currently assessing the impact of adopting SFAS 123R to our consolidated financial statements.

      In October 2004, the American Jobs Creation Act of 2004 (AJCA) was signed into law. In December 2004, the FASB issued Staff Position No. 109-1 (FSP 109-1), “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” and Staff Position No. 109-2 (FSP 109-2), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004”. FSP 109-1 clarifies that the manufacturer’s tax deduction provided for under the AJCA should be accounted for as a special deduction in accordance with SFAS No. 109 and not as a tax rate reduction. FSP 109-2 provides accounting and disclosure guidance for the repatriation of certain foreign earnings to a U.S. taxpayer as provided for in the AJCA. We do not expect that the tax benefits resulting from the AJCA will have a material impact on our financial statements.

Source of Our Revenues

      We derive our revenues from the sale of oil and natural gas that is produced from our oil and natural gas properties. Revenues are a function of the volume produced and the prevailing market prices at the time of sale.

      To achieve more predictable cash flows and to reduce our exposure to downward price fluctuations, we utilize derivative instruments to hedge future sales prices on a portion of our oil and natural gas production. Our current strategy is to have up to 25% of our current monthly-annualized production volumes hedged over the next twelve months. For example, if our production volumes for any given month totaled 1 Bcfe, then our annualized production would be 12 Bcfe. Thus using our strategy, we could have up to 3 Bcfe of our production over the next twelve months hedged. The use of certain types derivative instruments may prevent us from realizing the benefit of upward price movements.

Components of Our Cost Structure

•  Production Costs are the day-to-day costs incurred to bring hydrocarbons out of the ground and to the market together with the daily costs incurred to maintain our producing properties. This includes lease operating expenses and production taxes.

—  Lease operating expenses are generally comprised of several components including the cost of labor and supervision to operate wells and related equipment; repairs and maintenance; related materials, supplies, fuel, and supplies utilized in operating the wells and related equipment and facilities; insurance applicable to wells and related facilities and equipment. Lease operating expenses also include the cost for expensed workovers. Lease operating expenses are driven in part by the type of commodity produced, the level of workover activity and the geographical location of the properties. Oil is inherently more expensive to produce than natural gas.

—  Lease operating expenses also include ad valorem taxes, which are imposed by local taxing authorities such as school districts, cities, and counties or boroughs. The amount of the tax is based on a percent of value of the property assessed or determined by the taxing authority on an annual basis. When oil and natural gas commodity prices rise, the value of our underlying property interests increase. This results in higher ad valorem taxes.

—  In the U.S. there are a variety of state and federal taxes levied on the production of oil and natural gas. These are commonly grouped together and referred to as production taxes. The majority of our production tax expense is based on a percent of gross value realized at the

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wellhead at the time the production is sold or removed from the lease. As a result, our production tax expense increases with increases in crude oil and natural gas commodity prices.

—

Historically, taxing authorities have occasionally encouraged oil and natural gas industry to explore for new oil and natural gas reserves, or develop high cost reserves through reduced tax rates or credits. These incentives have been narrow in scope and short-lived. A small number of our wells currently qualify for reduced production taxes because they are discoveries based on the use of 3-D seismic or high cost wells.

•  Depreciation, Depletion and Amortization is the systematic expensing of the capital costs incurred to acquire, explore and develop natural gas and oil. As a full cost company, we capitalize all direct costs associated with our exploration and development efforts, including interest and certain general and administrative costs, and apportion these costs to each unit of production sold through depletion expense. Generally, if reserve quantities are revised up or down, our depletion rate per unit of production will change inversely. When the depreciable base increases or decreases, the depletion rate will move in the same direction.

•  Asset Retirement Accretion Expense is the systematic, monthly accretion of future abandonment costs of tangible assets such as wells, service assets, pipelines, and other facilities.

•  General and Administrative is our overhead, and includes payroll and benefits for our corporate staff, costs of maintaining our headquarters, managing our production and development operations and legal compliance. We capitalize general and administrative costs directly related to our exploration and development activities.

•  Interest. We rely on our senior credit facility to fund our short-term liquidity (working capital) and our long-term financing needs. As a result, we incur interest expense that correlates to both fluctuations in interest rates and to the extent that our cash flows from operations do not exceed our spending. We expect to continue to incur interest expense as we continue to grow. We capitalize interest directly related to our unevaluated properties and certain properties under development, which are not being amortized.

•  Income Taxes. We are generally subject to a 35% federal income tax rate. For income tax purposes, we are allowed deductions for accelerated depreciation, depletion and intangible drilling costs that reduce our current tax liability. Through 2004, all of our income taxes are deferred.

Capital Commitments

      Our primary needs for cash are to fund our capital expenditure program, fund working capital and the repayment of contractual obligations. Cash will be required to fund capital expenditures for the exploration and development of oil and natural gas properties necessary to offset the inherent declines in production and proven reserves typical in an extractive industry like ours. Future success in growing reserves and production will be highly dependent on our access to cost effective capital resources and our success in economically finding and producing additional oil and natural gas reserves. Funding for the exploration and development of oil and gas properties and the repayment of our contractual obligations may be provided by any combination of cash flow from operations, cash on our balance sheet, the unused committed borrowing capacity under our senior credit facility, reimbursements of prior land and seismic costs by participants in our projects and the sale of interests in projects and properties or alternative financing sources as discussed in “— Contractual Obligations” and “— Capital Resources.” Cash flows from operations and the unused committed borrowing capacity under our senior credit facility fund our working capital obligations. We believe that cash on hand, net cash provided by operating activities, and the unused committed borrowing capacity under our senior credit facility will be adequate to satisfy future financial obligations and liquidity.

      In the current environment of higher commodity prices, there may be increased demand for drilling equipment and services, leases and economically attractive prospects, which then may result in less availability and higher costs to us for those resources.

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Capital Expenditures

      The timing of most of our capital expenditures is discretionary because we have no material long-term capital expenditure commitments. Consequently, we have a significant degree of flexibility to adjust the level of our capital expenditures as circumstances warrant. Our capital expenditure program includes the following:

•  cost of acquiring and maintaining our lease acreage position and our seismic resources;

•  cost of drilling and completing new oil and natural gas wells;

•  cost of installing new production infrastructure;

•  cost of maintaining, repairing and enhancing existing oil and natural gas wells;

•  cost related to plugging and abandoning unproductive or uneconomic wells; and,

•  indirect costs related to our exploration activities, including payroll and other expenses attributable our exploration professional staff.

      Our budgeted capital expenditures for 2005 are as follows.

	2005
	(In thousands)
Drilling	$	70,308
Net land and seismic		13,065
Capitalized interest and G&A		6,184
Other assets		615
Total	$	90,172

      The capital that funds our drilling activities is allocated to individual prospects based on the value potential of a prospect, as measured by a risked net present value analysis. We start each year with a budget and reevaluate this budget monthly. The primary factors that impact this value creation measure include forecasted commodity prices, drilling and completion costs, and a prospect’s risked reserve size and risked initial producing rate. Other factors that are also monitored throughout the year that influence the amount and timing of all our budgeted expenditures include the level of production from our existing oil and natural gas properties, the availability of drilling and completion services, and the success and resulting production of our newly drilled wells. The outcome of our monthly analysis results in a reprioritization of our exploration and development well drilling schedule to ensure that we are optimizing our capital expenditure plan.

      Over the past three years, we have spent approximately $39.2 million to drill 50 exploratory wells, which represents 24% of our total capital expenditures for oil and natural gas activities during that time period. For 2005, we currently plan to spend approximately $34.7 million, or 38% of our total budgeted capital expenditures to drill 17 exploratory wells and to drill and complete wells that were in progress at December 31, 2004. We believe that we possess a multi-year inventory of exploratory drilling prospects, the majority of which have been internally generated by our staff. As a consequence and considering the results that we have achieved in recent years, we expect that we will continue to emphasize our prospect generation and drilling strategy as our primary means of creating value for our stockholders.

      Over the past three years we have spent approximately $83.9 million to drill 70 development wells and on other various development activities, which represents 52% of our total capital expenditures for oil and natural gas activities during that time period. Due to our exploratory drilling success, over the last five years, a growing percentage of our capital expenditures have been allocated to the development of past field discoveries. For 2005, we currently plan to spend approximately $35.6 million, or 39% of our total budgeted capital expenditures on development activities, which include the drilling of 20 development wells. We currently plan to allocate approximately $26.5 million of this capital to develop our proved undeveloped reserves at December 31, 2004.

      To support our prospect generation activities, we allocate a portion of our capital expenditures to land and seismic. Over the past three years we have spent $22.1 million for land and seismic which represents

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14% of our total capital expenditures for oil and natural gas activities during that time period. For 2005, we expect to spend approximately $13.1 million or 14% of our total capital expenditures on land and seismic activities.

      Additionally, we currently plan to capitalize approximately $6.2 million of our forecasted total general and administrative cost and forecasted interest in 2005.

      The final determination with respect to our 2005 budgeted expenditures will depend on a number of factors, including:

•  commodity prices;

•  production from our existing producing wells;

•  the results of our current exploration and development drilling efforts;

•  economic and industry conditions at the time of drilling, including the availability of drilling equipment; and

•  the availability of more economically attractive prospects.

      There can be no assurance that the budgeted wells will, if drilled, encounter commercial quantities of natural gas or oil.

      For a more in depth discussion of our 2005 capital expenditure plan see “Item 2. Properties.”

      Statements in this section include forward-looking statements. See “— Forward-Looking Statements.”

Contractual Obligations

      The following schedule summarizes our known contractual cash obligations at December 31, 2004 and the effect such obligations are expected to have on our liquidity and cash flow in future periods.

	Payments Due by Year
	Total						2007-		2009 and
	Outstanding		2005		2006		2008		Thereafter
	(In thousands)
Debt:
Senior credit facility	$	21,000	$	—	$	—	$	—	$	21,000
Senior subordinated notes		20,000		—		—		—		20,000
Mandatorily redeemable, Series A preferred stock		9,520		—		—		—		9,520
Total	$	50,520	$	—	$	—	$	—	$	50,520
Other commitments:
Interest, senior credit facility(a)	$	3,361	$	800	$	796	$	1,591	$	174
Interest, senior subordinated notes(b)		6,422		1,522		1,522		3,044		334
Dividend Mandatorily redeemable, Series A preferred stock(c)		3,331		571		571		1,142		1,047
Non-cancelable operating leases(d)		5,326		692		709		1,385		2,540
Asset Retirement Obligations		2,896		242		172		302		2,180
Total	$	21,336	$	3,827	$	3,770	$	7,464	$	6,275

(a)	Calculation assumes $21 million outstanding under our senior credit facility, our senior credit facility matures on March 21, 2009 and the following interest rate assumptions.
	• We paid an interest rate of 4.16% through January 20, 2005. This was the interest rate that we paid on borrowings outstanding under our senior credit facility at December 31, 2004, and the interest rate we paid prior to amending and restating our senior credit agreement on January 21, 2005.

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	• We pay an interest rate of 3.79% from January 21, 2005 through maturity on March 21, 2009. This is the interest rate that we are required to pay on borrowings under our amended and restated senior credit facility. It was calculated assuming that we utilized approximately 31% of our available borrowing base and a weighted average Eurodollar rate of 2.41% plus a margin of 1.375%. This is the weighted average Eurodollar rate we used to calculate the interest that we paid on borrowings outstanding under senior credit facility at December 31, 2004. The amount of interest that we pay on borrowings under our senior credit facility will fluctuate over time as borrowings under our senior credit facility increase or decrease and as the applicable interest rate increases or decreases. See “Item 7A Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk.”
(b)	Calculated assuming $20 million outstanding, an interest rate of 7.61% and the notes mature on March 21, 2009. The interest rate on our subordinated notes is fixed using an interest rate swap.
(c)	At our option, the dividends on our Series A preferred stock may be paid in cash at a rate of 6% per annum or paid in kind through the issuance of additional shares of preferred stock in lieu of cash at a rate of 8% per annum. Our option to pay dividends in kind expires on October 31, 2005.
	Calculated assuming $9.5 million outstanding, that we elect to pay the dividends in cash at a rate 6% per annum and the mandatorily redeemable Series A preferred stock matures on October 31, 2010.
	If we elect to pay the dividends in kind, we would be required to issue approximately 32,476 shares of additional Series A preferred and pay approximately $101,269 in cash to pay dividends of $750,789 in 2005. This represents dividends on our outstanding Series A preferred stock from January 1, 2005 to October 31, 2005, the date our option to pay dividends in kind expires, and two months of cash dividends at 6%. Thereafter, we would be required to pay an annual cash dividend of approximately $610,000 until maturity.
(d)	Not reduced by rental payments that we will receive from a non-cancelable sublease of approximately $69,000 due in 2005 and $44,000 due in 2006.

Senior Credit Facility

      As of December 31, 2004, we had $21 million in borrowings outstanding under our senior credit facility. On January 21, 2005, we amended and restated our $80 million senior credit facility to provide up to $100 million in borrowing capacity and to extend the maturity of our senior credit facility from March 21, 2006 to March 21, 2009. Our committed borrowing base under our senior credit facility, which did not change with the amended and restated facility, at December 31, 2004, was $68.5 million.

      Our borrowing base is subject to redetermination at least semi-annually using the administrative agent and lenders’ usual and customary criteria for oil and gas reserve valuation. While we do not expect the amount that we have borrowed under our senior credit facility to exceed our borrowing base, in the event that our borrowing base is adjusted below the amount that we have borrowed, we have a period of six months to reduce our outstanding debt to the borrowing base available with a requirement to provide additional borrowing base assets or pay down one-sixth of the excess during each of the six months.

      The interest rate we pay on borrowings outstanding under our senior credit facility is based on Eurodollar (LIBOR) or Base Rate (Prime) indications, plus a margin. These margins are subject to change as the percentage of the available borrowing base that we utilize changes. We are also required to pay a quarterly commitment fee on the average daily-unused portion of our borrowing base. The

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commitment fees we pay are subject to change as the percentage of our available borrowing base that we utilize changes. The margins and commitment fees that we pay are as follows:

Percent of	Eurodollar			Base
Borrowing Base	Rate			Rate			Commitment
Utilized	Advances			Advances			Fees
< 25%		1.250	%		0.250	%		0.250	%
£ 25% and < 50%		1.375	%		0.375	%		0.250	%
£ 50% and < 75%		1.625	%		0.625	%		0.375	%
£ 75% and < 90%		1.875	%		0.875	%		0.375	%
£ 90%		2.000	%		1.000	%		0.500	%

      Our senior credit facility also contains customary restrictions, which includes, among others, restrictions on liens, restrictions on incurring other indebtedness, restrictions on mergers, restrictions on investments, and restrictions on hedging activity of a speculative nature or with counterparties having credit ratings below specified levels.

      We are required to maintain a current ratio of at least 1 to 1 and an interest coverage ratio for the four most recent quarters of at least 3 to 1. Should we be unable to comply with these or other covenants, our senior lenders may be unwilling to waive compliance or amend the covenants in the future. If we should fail to perform our obligations under these and other covenants, our senior credit commitment could be terminated and any outstanding borrowings under our facility could be declared immediately due and payable. Our current ratio at December 31, 2004 and interest coverage ratio for the twelve-month period ending December 31, 2004, were 1.7 to 1 and 18.4 to 1, respectively. As December 31, 2004, and for the year then ended, we were in compliance with all covenant requirements in connection with our senior credit facility.

      A provision was added to our new senior credit agreement giving us the option to increase the aggregate commitment amount from the current $100 million to an amount not to exceed $200 million. Either new institutions, which the administrative agent must approve, or existing institutions may hold this additional commitment. Our senior credit agreement also permits letters of credit up to the lesser of $5 million or the unused committed borrowing base. Issuances of letters of credit reduce the amount of borrowings available to us under our senior credit facility.

      We strive to manage the borrowings outstanding under our senior credit facility in order to maintain excess borrowing capacity. As of March 31, 2005, we had $38.1 million of borrowings outstanding and $30.4 million of additional borrowing capacity under our senior credit facility.

      The future amounts of debt that we borrow under our senior credit facility is dependent primarily on net cash provided by operating activities, proceeds from other financing activities, proceeds generated from alternative financings and proceeds generated from asset dispositions.

      See “ — Analysis of Changes in Cash & Cash Equivalents — Analysis of changes in cash flows from financing activities — Senior Credit Facility” for explanation of prior year changes in our outstanding debt balance under our senior credit facility.

Senior Subordinated Notes

      As of December 31, 2004, we had $20 million of senior subordinated notes outstanding. On January 21, 2005, we amended and restated our senior subordinated credit agreement in order to reduce the interest rate that we pay on borrowings outstanding under the subordinated credit agreement and have the covenants and other features of the agreement mirror those of our amended and restated senior credit agreement amended at the same time. See “ — Senior Credit Facility.”

      Prior to amendment, we were required to pay an interest rate based on the Eurodollar rate (LIBOR), plus a margin of 5.05%. We also entered into an interest rate swap contract to fix the coupon that we paid on those borrowings at 8.76%. The interest rate that we are now required to pay on our subordinated notes

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is based on the Eurodollar rate (LIBOR), plus a margin of 3.9%. Using the swap contract, the interest rate is fixed at 7.61%. Our new interest rate is retroactive back to October 1, 2004. Interest on the senior subordinated notes is payable quarterly in arrears on the first business day following the last day of each quarter ended March, June, September and December.

      The senior subordinated notes are secured obligations ranking junior to our senior credit facility and have covenants similar to the senior credit facility. We are required to maintain a current ratio of at least 1 to 1 and an interest coverage ratio for the four most recent quarters of at least 3 to 1. Our current ratio at December 31, 2004 and interest coverage ratio for the twelve-month period ending December 31, 2004, were 1.7 to 1 and 18.4 to 1, respectively. At December 31, 2004, and for the year then ended, we were in compliance with all covenant requirements in connection with our senior subordinated notes.

      We are also required to maintain a Total Calculated NPV to Total Debt Ratio of 1.5 to 1. Total Calculated NPV is the estimated future cash flows from our reserves using the risked net present value calculated using discounted at 9% to total debt of 1.5 to 1. As amended, the price assumptions used to determine NPV for reserves will be based upon the following price decks: (i) for natural gas, the Gas Strip Price, provided that if any Gas Strip Price is greater than $4.00 per MMBtu, the price shall be capped at $4.00 per MMBtu; and (ii) for crude oil, the Oil Strip Price, provided that if any Oil Strip Price is greater than $27 per barrel, the price shall be capped at $27 per barrel. Our ratio of risked net present value discounted at 9% to total debt at June 30, 2004, was 2.3 to 1, and was in compliance with the subordinated notes covenant that requires us to maintain a ratio of 1.5 to 1.

      If we should fail to perform our obligations under these and other covenants, our senior subordinated notes could be terminated and could be declared immediately due and payable.

      See “ — Analysis of Changes in Cash & Cash Equivalents — Analysis of changes in cash flows from financing activities — Senior Subordinated Notes” for explanation of prior year changes in our outstanding senior subordinated notes balances.

Mandatorily Redeemable Preferred Stock

      As of December 31, 2004, we had $9.5 million in mandatorily redeemable Series A preferred stock outstanding, which is held by merchant banking funds managed by affiliates of CSFB Private Equity. At our option, the dividends on our Series A preferred stock may be paid in cash at a rate of 6% per annum or paid in kind through the issuance of additional shares of preferred stock in lieu of cash at a rate of 8% per annum. Our option to pay dividends in kind expires on October 31, 2005. To date, we have satisfied all of the dividend payments with issuance of additional shares of Series A preferred stock. Our Series A preferred stock matures on October 31, 2010 and is redeemable at our option at 100% or 101% of the stated value per share (depending upon certain conditions) at anytime prior to maturity.

      Our preferred stock balance outstanding at December 31, 2004, represents the balance of preferred stock that remained outstanding after CSFB Private Equity exercised its warrants to purchase our common stock in November and December of 2003 and dividends that have been paid in kind on this preferred stock.

      See “ — Analysis of Changes in Cash & Cash Equivalents — Analysis of changes in cash flows from financing activities — Mandatorily Redeemable Preferred Stock” and “Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters — Mandatorily Redeemable Preferred Stock” for explanation of prior year changes in our outstanding Mandatorily Redeemable Preferred Stock balances.

Off Balance Sheet Arrangements

      We currently have operating leases, which are considered off balance sheet arrangements. We do not currently have any other off balance sheet arrangements or other such unrecorded obligations, and we have not guaranteed the debt of any other party.

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Capital Resources

      We intend to fund our 2005 capital expenditure program and contractual commitments through cash flows from operations, borrowings under our senior credit facility and if required, alternative financing sources. Our primary sources of cash during 2004 were funds generated by operations and net proceeds received from the sale of common stock in July 2004. Cash from the common stock sale was used for exploration and development expenditures and to reduce debt under our revolving bank credit facility. We made aggregate cash payments of $1.6 million for interest in 2004.

Net cash provided by operating activities

      Net cash provided by operating activities is a function of the prices that we receive from the sale of oil and natural gas, which are inherently volatile and unpredictable, gains or losses related to hedging, production, operating cost and our cost of capital. Our asset base, as with other extractive industries, is a depleting one in which each Mcf of natural gas or barrel of oil produced must be replaced or our ability to generate cash flow, and thus sustain our exploration and development activities, will diminish. During 2004, 2003 and 2002, net cash provided by operating activities funded 67%, 90% and in excess of 100% of our net cash used by investing activities, respectively. See “ — Risk Factors — Our Future Operating Results May Fluctuate and Significant Declines in Them Would Limit Our Ability To Invest In Projects” and “ — Risk Factors — The Failure To Replace Reserves In The Future Would Adversely Affect Our Production And Cash Flows.”

Senior Credit Facility

      As of December 31, 2004, we had $47.5 million of unused committed borrowing capacity available under our senior credit facility. Since our borrowing base is redetermined at least semi-annually, the amount of borrowing capacity available to us could fluctuate. While we do not expect the amount that we have borrowed under our senior credit facility to exceed our borrowing base, in the event that our borrowing base is adjusted below the amount that we have borrowed, our access to further borrowings will be reduced, and we may not have the resources necessary to carry out our planned exploration and development activities.

      Our senior credit facility also contains customary restrictions and covenants. Should we be unable to comply with these or other covenants, our senior lenders may be unwilling to waive compliance or amend the covenants and our liquidity may be adversely affected. See “ — Risk Factors — Our Level Of Indebtedness May Adversely Affect Our Cash Available For Operations, Thus Limiting Our Growth, Our Ability To Make Interest And Principal Payments On Our Indebtedness As They Become Due And Our Flexibility To Respond To Market Changes” and “ — Capital Commitments – Senior Credit Facility.”

      When we amended and restated our senior credit facility on January 21, 2005, a provision was added which gives us the option to increase the aggregate amount committed from the current $100 million to an amount not to exceed $200 million. Either new institutions, which the administrative agent must approve, or existing institutions may hold this additional commitment. Our senior credit agreement also permits letters of credit up to the lesser of $5 million or the unused committed borrowing base. Issuances of letters of credit reduce the amount of borrowings available to us under our senior credit facility.

      The future amounts of debt that we borrow under our senior credit facility is dependent primarily on net cash provided by operating activities, proceeds from other financing activities and proceeds generated from asset dispositions.

      We strive to manage the borrowings outstanding under our senior credit facility in order to maintain excess borrowing capacity. As of March 31, 2005, we had $30.4 million of additional borrowing capacity under our senior credit facility.

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Access to Capital Markets

      We currently have an effective universal shelf registration statement covering the sale, from time to time, of our common stock, preferred stock, depositary shares, warrants and debt securities, or a combination of any of these securities. In July 2004, we sold 2,598,500 shares of our common stock under the universal shelf registration statement. Following this sale, our remaining capacity under the shelf registration statement is approximately $176.9 million. However, our ability to raise additional capital using our shelf registration statement may be limited due to overall conditions of the stock market or the oil and natural gas industry.

Commodity Prices

      Changes in commodity prices significantly affect our capital resources, liquidity and operating results. Price changes directly affect revenues and can indirectly impact expected production by changing the amount of capital available to reinvest in our exploration and development activities. Commodity prices are impacted by many factors that are outside of our control. Over the past couple of years, commodity prices have been very volatile. We expect that commodity prices will continue to fluctuate significantly in the future. As a result, we cannot accurately predict future oil and natural gas prices, and therefore, we cannot determine what effect increases or decreases will have on our capital program, production volumes and future revenues.

      The prices we receive for our oil production are based on global market conditions. Our average sales price for oil in 2004 was $40.13 per barrel, which was 30% higher and 59% higher than the price we received in 2003 and 2002, respectively. Significant factors that will impact 2005 oil prices include developments in Iraq and other Middle East countries, the extent to which members of the Organization of Petroleum Exporting Countries and other oil exporting nations are able to manage oil supply through export quotas.

      North American market forces primarily drive the price we receive for our natural gas production. Factors that can affect the price of natural gas are changes in market demands, overall economic activity, weather, pipeline capacity constraints, inventory storage levels, basis differentials and other factors. Over the past two years natural gas prices have been volatile. Our average sales price for natural gas in 2004 was $6.05 per Mcf, which was 7% higher and 82% higher than the price that we received in 2003 and 2002, respectively. The increase North American gas prices in 2004 were in response to strong supply and demand fundamentals. Natural gas prices for 2005 will depend on variations in key North American gas supply and demand indicators.

Results of Operations

Comparison of the twelve-month periods ended December 31, 2004, 2003 and 2002

Production volumes

	Year Ended December 31,
	2004		% Change			2003		% Change			2002
Oil (MBbls)		573		(20	)%		720		3	%		701
Natural gas (MMcf)		8,830		39	%		6,356		10	%		5,791
Total (MMcfe)(1)		12,265		15	%		10,674		7	%		9,996
Average daily production (MMcfe/d)		34.1					29.7					27.8

(1)  Mcfe is defined one million cubic feet equivalent of natural gas, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

      Our net equivalent production volumes for 2004 were 12.3 Bcfe (34.1 MMcfe/d) compared to 10.7 Bcfe (29.7 MMcfe/d) in 2003. The increase in our production volumes was due to production growth from wells that we drilled and completed during the last quarter of 2003 and during 2004. New production

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from these wells was partially offset by the natural decline of existing production. Natural gas represented 72% and 60% of our total production in 2004 and 2003, respectively. For 2004 compared to 2003, the change in our production volumes was due to the following.

•  Production from our Gulf Coast province for 2004 increased 14% when compared to production from that province in 2003. Gulf Coast production represented 61% of our total production in 2004 versus 62% in 2003. Natural gas represented approximately 74% of our total production from the Gulf Coast in 2004 compared to 60% in 2003.

•  Production from our Anadarko Basin province for 2004 increased 46% when compared to production from that province in 2003. Anadarko Basin production represented 29% of our total production in 2004 versus 22% in 2003. Natural gas represented approximately 88% of our total production from the Anadarko Basin in 2004 compared to 90% in 2003.

•  Production from our West Texas province for 2004 decreased 26% when compared to production from that province in 2003 West Texas production represented 10% of our total production versus 16% in 2003. Production from our West Texas province is primarily oil. Oil represented approximately 90% of our total production from our West Texas province in 2004 versus 84% in 2003.

      Our net equivalent production volumes for 2003 were 10.7 Bcfe (29.7 MMcfe/d) compared to 10 Bcfe (27.8 MMcfe/d) in 2002. The increase in our production volumes was due to production growth from wells that we drilled and completed during the last quarter of 2002 and during 2003. New production from these wells was partially offset by the natural decline of existing production. Natural gas represented 60% and 58% of our total production in 2003 and 2002, respectively. For 2003 compared to 2002, the change in our production volumes was due to the following.

•  Production from our Gulf Coast province for 2003 increased 24% when compared to production from that province in 2002. Gulf Coast production represented 62% of our total production in 2003 versus 53% in 2002. Natural gas represented approximately 60% of our total production from the Gulf Coast in 2003 compared to 61% in 2002.

•  Production from our Anadarko Basin province for 2003 decreased 6% when compared to production from that province in 2002. Anadarko Basin production represented 22% of our total production in 2003 versus 26% in 2002. Natural gas represented approximately 90% of our total production from the Anadarko Basin in 2003 and 2002.

•  Production from our West Texas province for 2003 decreased 21% when compared to production from that province in 2002. West Texas production represented 16% of our total production versus 21% in 2002. Production from our West Texas province is primarily oil. Oil represented approximately 84% of our total production from our West Texas province in 2003 versus 89% in 2002.

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Hedging, commodity prices and revenues

      The following table shows the type of derivative commodity contracts, the volumes, the weighted average NYMEX reference price for those volumes, and the associated gain /(loss) upon settlement of those contracts for 2004, 2003 and 2002.

	Year Ended December 31,
	2004			% Change			2003			% Change			2002
Oil swaps
Volumes (MBbls)		73			(67	%)		226			78	%		127
Average swap price ($ per Bbl)	$	24.65			1	%	$	24.51			(6	%)	$	25.96
Gain /(loss) upon settlement ($ in thousands)	$	(1,073	)		(28	%)	$	(1,488	)		424	%	$	(284	)
Oil collars
Volumes (MBbls)		179			294	%		45			(78	%)		205
Average floor price ($ per Bbl)	$	24.92			38	%	$	18.00			0	%	$	18.00
Average ceiling price ($ per Bbl)	$	31.21			38	%	$	22.56			1	%	$	22.36
Gain /(loss) upon settlement ($ in thousands)	$	(1,768	)		345	%	$	(397	)		(53	%)	$	(851	)
Total oil
Volumes (MBbls)		252			(8	%)		271			(18	%)		332
Gain /(loss) upon settlement ($ in thousands)	$	(2,841	)		51	%	$	(1,885	)		66	%	$	(1,135	)
Natural gas swaps
Volumes (MMbtu)		753			(72	%)		2,664			(21	%)		3,359
Average swap price ($ per MMbtu)	$	4.53			19	%	$	3.81			22	%	$	3.13
Gain /(loss) upon settlement ($ in thousands)	$	(1,066	)		(78	%)	$	(4,807	)		575	%	$	(712	)
Natural gas collars
Volumes (MMbtu)		2,504			NM			—			NM			—
Average floor price ($ per MMbtu)	$	4.54			NM		$	—			NM		$	—
Average ceiling price ($ per MMbtu)	$	6.85			NM		$	—			NM		$	—
Gain /(loss) upon settlement ($ in thousands)	$	(787	)		NM		$	—			NM		$	—
Natural gas floors
Volumes (MMbtu)		—			100	%		1,070			NM			—
Average floor price ($ per MMbtu)	$	—			100	%	$	4.50			NM		$	—
Gain /(loss) upon settlement ($ in thousands)	$	—			100	%	$	—			NM		$	—
Total natural gas
Volumes (MMbtu)		3,257			(13	%)		3,734			11	%		3,359
Gain /(loss) upon settlement ($ in thousands)	$	(1,853	)		(61	%)	$	(4,807	)		575	%	$	(712	)

      Reported revenues from the sale of oil and natural gas are based on the market price we receive for our commodities, adjusted for marketing charges and the results from the settlement of our derivative commodity contracts that qualify for cash flow hedge accounting treatment under SFAS 133.

      We utilize commodity swap, collar, three way costless collar and floor contracts to (i) reduce the effect of price volatility on the commodities that we produce and sell, (ii) reduce commodity price risk and (iii) provide a base level of cash flow in order to assure we can execute at least a portion of our capital spending plans. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Derivative Instruments and Hedging Activities — Commodity Price Risk” for a description of our derivative commodity contracts and our open derivative commodity contracts.

      The effective portions of changes in the fair values of our derivative commodity contracts that qualify for cash flow hedge accounting treatment under SFAS 133 are recorded as increases or decreases to

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stockholders’ equity until the underlying contract is settled. Consequentially, changes in the effective portions of these derivative contracts add volatility to our reported stockholders’ equity until the contract is settled or is terminated. See “Notes to the Consolidated Financial Statements — Note 2.”

      Gains or losses related to the settlement and the changes in the fair values of our derivative commodity contracts that do not qualify for cash flow hedge accounting treatment under SFAS 133 are recognized in other income (expense).

      See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Derivative Instruments and Hedging Activities — Commodity Price Risk” for our open derivative commodity contracts.

Commodity prices and revenues

      The following table shows our revenue from the sale of oil and natural gas for 2004, 2003 and 2002.

		Year Ended December 31,
		2004			% Change			2003			% Change			2002
		(In thousands, except per unit measurements)
Revenue from the sale of oil and natural gas:
Oil sales		$	22,976			4	%	$	22,157			26	%	$	17,644
Gain (loss) due to hedging			(2,841	)		51	%		(1,885	)		66	%		(1,135	)
	Total revenue from the sale of oil	$	20,135			(1	%)	$	20,272			23	%	$	16,509
Natural gas sales		$	53,431			48	%	$	36,080			87	%	$	19,303
Gain (loss) due to hedging			(1,853	)		(61	%)		(4,807	)		575	%		(712	)
	Total revenue from the sale of natural gas	$	51,578			65	%	$	31,273			68	%	$	18,591
Oil and natural gas sales		$	76,407			31	%	$	58,237			58	%	$	36,947
Gain (loss) due to hedging			(4,694	)		(30	%)		(6,692	)		262	%		(1,847	)
	Total revenue from the sale of oil and natural gas	$	71,713			39	%	$	51,545			47	%	$	35,100
Average prices:
Oil sales price (per Bbl)		$	40.13			30	%	$	30.79			22	%	$	25.17
Gain (loss) due to hedging (per Bbl)			(4.96	)		89	%		(2.62	)		62	%		(1.62	)
	Realized oil price (per Bbl)	$	35.17			25	%	$	28.17			20	%	$	23.55
Natural gas sales price (per Mcf)		$	6.05			7	%	$	5.68			71	%	$	3.33
Gain (loss) due to hedging (per Mcf)			(0.21	)		(72	%)		(0.76	)		533	%		(0.12	)
	Realized natural gas price (per Mcf)	$	5.84			19	%	$	4.92			53	%	$	3.21
Natural gas equivalent sales price (per Mcfe)		$	6.23			14	%	$	5.46			48	%	$	3.70
Gain (loss) due to hedging (per Mcfe)			(0.38	)		(40	%)		(0.63	)		232	%		(0.19	)
	Realized natural gas equivalent (per Mcfe)	$	5.85			21	%	$	4.83			38	%	$	3.51

		2003			2002
		to 2004			to 2003
Change in revenue from the sale of oil
Price variance impact		$	5,348		$	4,044
Volume variance impact			(4,529	)		469
Cash settlement of hedging contracts			(956	)		(750	)
	Total change	$	(137	)	$	3,763

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		2003		2002
		to 2004		to 2003
Change in revenue from the sale of natural gas
Price variance impact		$	3,275	$	14,914
Volume variance impact			14,076		1,863
Cash settlement of hedging contracts			2,954		(4,095	)
	Total change	$	20,305	$	12,682

      Our revenues from the sale of oil and natural gas for 2004 increased 39% over revenues in 2003. The change in revenues was due to the following:

•  Approximately $9.6 million of the increase in revenue from the sale oil and natural gas was due to a 15% increase in our production volumes;

•  Approximately $8.6 million of the increase was due to an increase in the sales price we received for oil and natural gas; and

•  Approximately $2 million of the increase was due a decrease in losses due to the cash settlement of derivative commodity contracts.

      Our revenues from the sale of oil and natural gas for 2003 increased 47% over revenues in 2002. The change in revenue was due to the following:

•  Approximately $18.9 million of the increase in oil and natural gas sales was due to a $1.76 Mcfe increase in the sales price we received for oil and natural gas;

•  Approximately $2.4 million of the increase in oil and natural gas sales was due to an increase in our production volumes; and,

•  These increases were offset by an increase in losses due to the cash settlement of derivative commodity contracts of $4.9 million.

      Other revenue. Other revenue relates to fees that we charge other parties who use our gas gathering systems that we own to move their production from the wellhead to third party gas pipeline systems. Other revenue for 2004 was $515,000 compared to $132,000 in 2003 and $76,000 in 2002. Costs related to our gas gathering systems are recorded in lease operating expenses.

Operating costs and expenses

      Production costs. Production costs include lease operating expenses and production taxes.

		Year Ended December 31,
		2004		% Change			2003		% Change			2002
		(In thousands, except per unit measurements)
Production cost:
Operating & maintenance		$	4,480		31	%	$	3,420		25	%	$	2,738
Expensed workovers			878		(22	)%		1,123		174	%		410
Ad valorem taxes			815		24	%		657		8	%		611
	Total lease operating expenses	$	6,173		19	%	$	5,200		38	%	$	3,759
Production taxes			3,107		25	%		2,477		25	%		1,977
	Total production expenses	$	9,280		21	%	$	7,677		34	%	$	5,736

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		Year Ended December 31,
		2004		% Change			2003		% Change			2002
		(In thousands, except per unit measurements)
Production cost ($ per Mcfe):
Operating & maintenance		$	0.36		13	%	$	0.32		14	%	$	0.28
Expensed workovers			0.07		(36	)%		0.11		175	%		0.04
Ad valorem taxes			0.07		17	%		0.06		0	%		0.06
	Total lease operating expenses	$	0.50		2	%	$	0.49		29	%	$	0.38
Production taxes			0.25		9	%		0.23		15	%		0.20
	Total production expenses	$	0.75		4	%	$	0.72		24	%	$	0.58

      The primary reason for the overall increase in our production costs over the past three years has been due to an increase in number of producing wells. In the future we anticipate that our total production cost will increase as we add new wells and production facilities and continue to maintain production from existing maturing properties. Changes in commodity prices will also have an affect on ad valorem taxes and production taxes. We believe that per unit of production measures are the best way to evaluate our production cost information. We use this information to evaluate our performance relative to our peers and to internally evaluate our performance.

      For 2004, our unit production cost increased 4% when compared to 2003. The change in our 2004 unit production cost was due to the following:

•  An increase in costs for compressor rental and maintenance and saltwater disposal were the primary reasons for the increase in our operating and maintenance expense;

•  Ad valorem taxes increased due to higher oil and natural gas prices during 2003;

•  Production taxes for 2004 were $0.02 higher due to an increase in the sales price that we received for our oil and natural gas. Our effective production tax rate in 2004 was 4.1% of pre-hedge oil and natural gas sales revenue, compared to 4.3% in 2003; and

•  A decrease in the number of expensed workovers partially offset these increases.

      For 2003, our unit production cost increased 24% when compared to 2002. The change in our 2003 unit production cost was due to the following:

•  An increase in workover activity represented $0.07 of the increase in lease operating expenses, with two workovers performed on two wells accounting for 100% of this increase;

•  The remaining $0.04 of the increase in lease operating expenses was due to increases in overhead fees, insurance, compressor rental and maintenance, saltwater disposal cost, cost for electricity, fuel and power and miscellaneous lease operating expenses. These increases were partly offset by decreases in contract service and labor expenses, lease and well abandonment expenses, lease maintenance expenses and surface equipment repair expenses;

•  Production taxes for 2003 were $0.03 higher due to an increase in the sales price that we received for our oil and natural gas. The increase in production taxes was offset by a credit related to the settlement of a portion of our gas imbalance. Our effective production tax rate in 2003 was 4.3% of pre-hedge oil and natural gas sales revenue, compared to 5.4% in 2002.

      General and administrative expenses. We capitalize a portion of our general and administrative costs. The costs capitalized represent the cost of technical employees, who work directly on capital projects. An engineer designing a well is an example of a technical employee working on a capital project.

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The cost of a technical employee includes associated technical organization costs such as supervision, telephone and postage.

	Year Ended December 31,
	2004			% Change			2003			% Change			2002
	(In thousands, except per unit measurements)
General and administrative cost	$	10,264			13	%	$	9,121			(0	%)	$	9,191
Capitalized general and administrative cost		(4,872	)		5	%		(4,621	)		10	%		(4,220	)
General and administrative expense	$	5,392			20	%	$	4,500			(9	%)	$	4,971
General and administrative expense ($ per Mcfe)	$	0.44			5	%	$	0.42			(16	%)	$	0.50

      For 2004 compared to 2003, our general and administrative expenses increased by 20%. The changes in general and administrative expenses for 2004 were primarily due to the following:

•  We paid approximately $399,000 to outside consultants and our independent public accountants for the implementation of Section 404 of Sarbanes-Oxley. We expect these cost to decrease approximately 50% in 2005;

•  We paid $242,000 related to the settlement of a legal dispute over the ownership of a well; and

•  Increases in payroll and benefits expense, fees paid to outside reserve engineers, franchise taxes and corporate insurance were the other primary reasons for the increase in general & administrative expenses.

      For 2003 compared to 2002, our general and administrative expenses decreased by $471,000. General and administrative expenses for 2002 included a non-cash charge for compensation expense of $596,000 related to vesting of options by an officer who left the company. Excluding this non-cash charge, our general and administrative expenses for 2003 increased by $125,000. The changes in general and administrative expenses for 2003 were primarily due to the following:

•  An increase in payroll and employee benefit expenses represented 55% of the total increase in general and administrative expenses. The increase in payroll and benefit expenses was primarily related to an increase incentive compensation expense, an increase in employee medical and life insurance cost and increases in salaries and wages;

•  An increase in director fees and financial reporting expenses represented 42% of the total increase in general and administrative expenses. These increases were primarily related to additional cost associated with the implementation of compliance with the Sarbanes-Oxley Act of 2002; and

•  The increase in payroll and employee benefit expenses was partially offset by an increase in amounts charged to joint ventures to cover the costs of managing these joint operations.

      Depletion of oil and natural gas properties. Our full-cost depletion expense is driven by many factors including certain costs spent in the exploration and development of producing reserves, production levels, and estimates of proved reserve quantities and future developmental costs at the end of the year. The historical financial information in this section pertaining to depletion expense and accumulated depletion that are part of our net proved oil and natural gas properties has been restated, as further discussed in Item 8, Financial Statements and Supplementary Data, Note 2.

	Year Ended December 31,
	2004		% Change			2003		% Change			2002
						Restated					Restated
	(In thousands, except per unit measurements)
Depletion of oil and natural gas properties	$	23,844		42	%	$	16,819		14	%	$	14,694
Depletion of oil and natural gas properties per Mcfe	$	1.94		23	%	$	1.58		7	%	$	1.47

      Approximately 36% of the increase in our depletion expense for 2004 was due to a 15% increase in production volumes. The remaining 64% of the increase was due to an increase in our depletion rate. Our depletion rate increased as a result of downward reserve revisions related to disappointing drilling results

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related to two proved undeveloped wells that were drilled in 2004 at our Mills Ranch and Floyd Fault Block fields, and a decline in performance of our Floyd South Field and in certain West Texas water drive wells.

      For 2005, based on our reserve base at December 31, 2004, we expect our depletion rate to be $2.39 per Mcfe.

      For 2003 compared to 2002, a $0.11 increase in our depletion rate accounted for approximately $1.1 million of the increase in our total depletion expense and increased production volumes accounted for approximately $997,000 of the increase. The increase in our depletion rate was due to an increase in our oil and natural gas finding and development costs incurred in 2003 and an increase in future development costs associated with our year-end 2003 reserves.

      Net interest expense. We capitalize interest expense on borrowings associated with major capital projects prior to their completion. Capitalized interest is added to the cost of the underlying assets and is amortized over the lives of the assets.

		Year Ended December 31,
		2004			% Change			2003			% Change			2002
		(In thousands)
Interest on senior credit facility		$	882			(47	%)	$	1,674			(54	%)	$	3,636
Interest on senior subordinated notes			1,703			(28	%)		2,369			6	%		2,243
Commitment fees			236			61	%		147			4,800	%		3
Dividend on mandatorily redeemable preferred stock			726			114	%		340			NM			—
Amortization of deferred loan and debt issuance cost			766			(27	%)		1,053			(12	%)		1,190
Other general interest expense			26			(48	%)		50			14	%		44
Capitalized interest expense			(1,195	)		46	%		(818	)		(7	%)		(878	)
	Net interest expense	$	3,144			(35	%)	$	4,815			(23	%)	$	6,238
Weighted average debt outstanding		$	56,352			(21	%)	$	71,392			(25	%)	$	95,562
Average interest rate on outstanding indebtedness(a)			6.3	%					6.3	%					6.2	%

(a)  Calculated as the sum of the interest expense on our outstanding indebtedness, commitment fees that we pay on unused borrowing capacity and the dividend on our mandatorily redeemable preferred stock divided by the weighted average debt and preferred stock outstanding for the period.

      Our net interest expense for 2004 was 35% lower than net interest expense in 2003. The following were the primary reasons for the change in our 2004 net interest expense.

•  The average interest rate that we paid on borrowings drawn under our senior credit facility was lower because we utilized a smaller percentage of our available borrowing base during 2004. Our weighted average debt outstanding under our senior credit facility during 2004 represented approximately 40% of our available borrowing base, compared to 66% in 2003. This decrease was partially offset by a 61% increase in the commitment fees that we paid on the unused portion of our borrowing base during 2004.

•  A 114% increase in the dividends that we paid on our mandatorily redeemable preferred stock due to 2004 includes a full year of dividends whereas 2003 only includes dividends for half the year due to the adoption of SFAS 150 in July 2003.

•  The amount of interest that we capitalized during 2004 increased due to an increase in our unevaluated property balance throughout the year. Approximately $200,000 of our capitalized interest in 2004 was related to the Mills Ranch #2-98 exploration well that was drilling at December 31, 2004.

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•  A 28% decrease in the interest we paid on our senior subordinated notes due to a 10% decrease in the weighted average notes outstanding during the period combined with a decrease in the interest rate that we paid on the outstanding notes.

      Our net interest expense for 2003 was 23% lower than net interest expense in 2002. The following were the primary reasons for the change in our 2003 net interest expense.

•  The average interest rate that we paid on borrowings drawn under our senior credit facility was lower because we utilized a smaller percentage of our available borrowing base during 2003. Our weighted average debt balance drawn under our senior credit facility during 2003 represented approximately 66% of our available borrowing base, compared to 100% in 2002. We also paid a lower interest rate on borrowings under our senior credit facility due to the amendment in March 2003. This decrease was partially offset because we had to pay commitment fees on the unused portion of our borrowing base during 2003. See “— Capital Commitments — Contractual Obligations” and “Item 7A Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk” for future interest expense and the sensitivity of interest expense on senior credit facility to changes in short-term interest rates.

•  An increase in the amount of interest that we paid on our senior subordinated notes due to an increase in the weighted average senior subordinated notes outstanding from $20.9 million in 2002 to $22.2 million in 2003. Our outstanding senior subordinated notes balance increased because a portion of the 2003 interest expense was paid in kind through the issuance of additional debt in lieu of cash. In December 2003, we decreased the amount of senior subordinated notes outstanding and lowered the interest rate on our senior subordinated notes. See “— Capital Commitments — Senior Subordinated Notes” for additional discussion on the amendment to our senior subordinated notes and “— Analysis of Changes In Cash and Cash Equivalents — Analysis of changes in cash flows from financing activities — Senior Subordinated Notes” for additional information about the changes in our senior subordinated notes outstanding.

•  Upon our adoption of SFAS 150 in July 2003, we reclassified approximately $8 million of our then outstanding mandatorily redeemable Series A and Series B preferred stock, which has no equity conversion features and must be settled with our assets, to long-term debt. As part of this reclassification, the dividends that have been paid on the reclassified amount since July 2003 have been reported as interest expense.

      Other income (expense). Other income (expense) primarily includes non-cash gains (losses) resulting from the change in fair market value of oil and gas derivative contracts that did not qualify as hedges, cash gains (losses) on the settlement of these contracts and non-cash gains (losses) related to charges for the ineffective portions of cash flow hedges.

      Other income (expense) included:

		Year Ended December 31,
		2004			% Change			2003			% Change			2002
		(In thousands)
Non-cash gain (loss) due to change in fair market value of derivative contracts that did not qualify as cashflow hedge under SFAS 133		$	(33	)		NM		$	—			(100	%)	$	384
Non-cash gain (loss) for ineffective portion of cash flow hedges			658			NM			(455	)		265	%		(122	)
Cash loss on settlement of derivative contracts that did not qualify as hedges			—			0	%		—			100	%		(559	)
Gain on investments			117			NM			—			(100	%)		21
Other			—			100	%		(146	)		329	%		(34	)
	Other income (loss)	$	742			NM		$	(601	)		94	%	$	(310	)

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      The following table shows the volumes and the weighted average NYMEX reference price for those volumes for our derivative commodity contracts that we did not designate as cash flow hedges under SFAS 133 in 2004, 2003 and 2002.

	Year Ended December 31,
	2004		% Change			2003		% Change			2002
Natural gas caps
Volumes (MMbtu)		—		0	%		—		(100	%)		1,810,000
Average ceiling price ($ per MMbtu)	$	—		0	%	$	—		(100	%)	$	2.63
Written puts
Volumes (MMbtu)		140,000		NM			—		0	%		—
Average ceiling price ($ per MMbtu)	$	5.50		NM		$	—		0	%	$	—

      See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Derivative Instruments and Hedging Activities — Commodity Price Risk” for a description of our derivative commodity contracts and our open derivative commodity contracts.

      Debt conversion expense. Debt conversion expense of $630,000 in 2002 represents the costs and fees we incurred to execute the conversion of $10 million of our senior debt to common stock. Our total outstanding indebtedness at December 31, 2002 was $81.8 million, compared to $91.7 million at December 31, 2001. There were no similar expenses in prior periods.

      Income taxes: A deferred tax liability or asset is recognized for the estimated future tax effects attributable to (i) NOLs and (ii) existing temporary differences between book and taxable income. Realization of net deferred tax assets is dependent upon generating sufficient taxable income within the carryforward period available under tax law.

      Prior to 2003, we believed that it was more likely than not that our net deferred tax assets would not be realized and, therefore, reflected a comparable valuation allowance. In 2003, we recognized a net deferred tax asset of $1.8 million because, as a result mainly of the increased level of capital expenditures resulting from the September 2003 equity offering, we believed we would have reversals of existing temporary differences between book and taxable income sufficient to result in future net deferred tax liabilities. The $1.8 million net deferred tax asset consisted of a $1.2 million deferred income tax benefit and a $0.6 million tax effect of unrealized hedging losses.

      In 2004, we recognized a current year net deferred tax liability of $10.6 million due to reversals of our existing temporary differences between book and taxable income resulting mainly from our capital expenditures. The $10.6 million net deferred tax liability consisted of a $10.9 million deferred income tax expense, a $0.3 million tax effect of unrealized hedging gains, and a $0.6 million credit to equity for the tax benefit from the exercise of stock options. At December 31, 2004, we believe it is more likely than not that capital loss carryforwards of approximately $1.8 million may expire unused and, accordingly, have established a valuation allowance of $0.6 million.

      Dividends and accretion of mandatorily redeemable preferred stock. We are required to pay dividends on our Series A preferred stock and were required to pay dividends on our Series B preferred stock. At our option, these dividends may and were able to be paid in cash at a rate of 6% per annum or paid in kind through the issuance of additional shares of preferred stock in lieu of cash at a rate of 8% per annum. We elected to pay dividends in kind in each quarter of 2004, 2003 and 2002.

      Upon our adoption of SFAS 150 in July 2003, we reclassified approximately $8 million of our then outstanding mandatorily redeemable Series A and Series B preferred stock that must be settled with our assets to long-term debt. As part of the reclassification, the dividend that has been paid on the reclassified amount since July 2003 has been reported as interest expense. See “— Critical Accounting Policies — New Accounting Pronouncements.”

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      The following table shows the effect on our balance sheet for the years ended December 31, 2004, 2003 and 2002 of the issuance of additional shares of preferred stock in lieu of paying cash dividends.

	Year Ended December 31,
			%					%
	2004		Change			2003		Change			2002
	(In thousands, except for shares issued)
Dividends	$	726		(76	%)	$	3,061		13	%	$	2,713
Accretion of mandatorily redeemable preferred stock		—		(100	%)		387		62	%		239
	$	726		(79	%)	$	3,448		17	%	$	2,952
Additional preferred shares issued
Series A		36,264		(73	%)		132,490		(1	%)		134,440
Series B		—		(100	%)		30,603		2,396	%		1,226

Analysis of Changes In Cash and Cash Equivalents

      The table below summarizes our sources and uses of cash during 2004, 2003 and 2002.

	Year Ended December 31,
				%						%
	2004			Change			2003			Change			2002
	(In thousands)
Net income, as restated	$	19,650			9	%	$	18,030			NM		$	2,276
Non-cash charges		36,455			88	%		19,357			9	%		17,734
Changes in working capital and other items		276			(94	%)		4,304			(52	%)		8,963
Cash flows provided by operating activities	$	56,381			35	%	$	41,691			44	%	$	28,973
Cash flows used by investing activities		(84,645	)		84	%		(46,089	)		69	%		(27,206	)
Cash flows provided (used) by financing activities		24,766			NM			(5,141	)		NM			8,439
Net increase (decrease) in cash and cash equivalents	$	(3,498	)		(63	%)	$	(9,539	)		NM		$	10,206

Analysis of net cash provided by operating activities

      For 2004 compared to 2003, net cash provided by operating activities increased by $14.7 million. The following were the primary reasons for this change.

•  Net cash provided by operating activities increased by $20.2 million due to an increase in our production volumes combined with an increase in the prices that we received for oil and natural gas and a decrease in losses on the settlement of our derivative contracts.

•  Higher production cost and general and administrative expenses partially offset $2.5 million of this increase.

•  The repayment of accounts payable in excess of collections of accounts receivable reduced net cash provided by operating activities by $9.3 million.

•  The settlement of the gas imbalance with our industry participant in our Diablo project increased net cash provided by operating activities by $2.8 million.

•  An increase in advances paid to us by participants in our 3-D seismic projects and certain wells increased net cash provided by operating activities by $3.2 million.

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      For 2003 compared to 2002, net cash provided by operating activities increased by $12.7 million. The following were the primary reason for this change.

•  An increase in the sales price that we received for the sale of our oil and natural gas during 2003 and an increase in 2003 production volumes led to an increase in net cash provided by operating activities of $18.9 million and $2.3 million, respectively. These increases were partially offset by a $4.8 million increase in losses related to the settlement of hedging contracts during 2003.

•  An increase in production cost and cash general and administrative expenses during 2003 reduced net cash provided by operating activities by $2.1 million.

•  A decrease in cash interest expense combined with a decrease in interest income and other income resulted in a $2.9 million increase to net cash provided by operating activities.

•  The collections of accounts receivable in excess of the payment of accounts payable resulted in an increase to net cash provided by operating activities of $1.4 million.

•  The partial settlement of our gas imbalance related to the wells in Home Run Triple Crown and Floyd Fault Block Fields resulted in a decrease to net cash provided by operating activities of $3.2 million. Due to the settlement, we borrowed an additional $4 million under our senior credit facility. The settlement reduced the balance of our gas imbalance payable by $11.3 million and reduced the balance of our gas imbalance receivable by approximately $7.2 million.

•  An increase in the amount of royalties that we paid to royalty owners in 2003 resulted in a $3.6 million decrease to net cash provided by operating activities.

•  A decrease in advances paid to us by participants in our 3-D seismic projects and certain wells combined with the elimination of cash deposits resulted in $1.2 million increase to net cash provided by operating activities.

Working Capital

      Working capital is the amount by which current assets exceed current liabilities. It is normal for us to report a working capital deficit at the end of a period. These deficits are primarily the result of accounts payable related to lease operating expenses, exploration and development costs, royalties payable and gas imbalances payable. Settlement of these payables will be funded by cash flows from operations or, if necessary, by additional borrowing under our senior credit facility.

      Our working capital deficit at December 31, 2004 was $19.5 million compared to a working capital deficit of $14.7 at December 31, 2003. This deficit included a liability of $870,000 and an asset of $142,000 related to the fair value our derivative contracts.

      Our working capital deficit at December 31, 2003 was $14.7 million compared to a working capital deficit of $688,000 at December 31, 2002. The deficit included a liability of $2.1 million related to the fair value of derivative contracts.

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Analysis of changes in cash flows used in investing activities

		Year Ended December 31,
		2004		2003		2002(c)
		(In thousands)
Cost Incurred:
Exploration(a)		$	30,189	$	20,126	$	12,693
Property acquisition(b)			6,226		4,850		2,510
Development(c)			50,497		22,285		13,301
Asset retirement obligation			513		269		—
	Costs incurred	$	87,425	$	47,530	$	28,504
Amount spent to develop proved undeveloped reserves		$	34,723	$	11,399	$	9,983

(a) Includes capital expenditures for the following

Drilling	$	18,339	$	13,586	$	7,292
Land and seismic		7,991		2,470		1,685
Capitalized cost		3,859		4,070		3,716
	$	30,189	$	20,126	$	12,693

(b) Includes capital expenditures for the following

Land and seismic	$	5,002	$	3,604	$	1,363
Capitalized cost		1,224		1,246		1,147
	$	6,226	$	4,850	$	2,510

(c) Includes capital expenditures for the following

Drilling	$	49,866	$	21,520	$	12,508
Capitalized cost		631		765		793
	$	50,497	$	22,285	$	13,301

      For 2004 compared to 2003, net cash used by investing activities increased 84% due to the increase in the amount of capital we spent on drilling, land and seismic activities.

      For 2003 compared to 2002, net cash used by investing activities increased 69% due to the increase in the amount of capital we spent on drilling, land and seismic activities.

Analysis of changes in cash flows from financing activities

      Over the three year period ended December 31, 2004, we have entered into various financing transactions with the intent of reducing our cost of capital and increasing our liquidity so that we could fund our capital expenditures for the exploration and development of oil and natural gas properties.

Senior Credit Facility

      During 2004 we borrowed $33 million under our senior credit facility. We used net proceeds from our sale of common stock in July 2004 combined and cash on hand to repay $31 million in borrowings.

      In 2003, we reduced the amount of outstanding borrowings under our senior credit facility by $41 million. The net proceeds from our sale of common stock in September 2003 were used to reduce borrowings outstanding under or senior credit facility by $40 million. We also paid down an additional $4 million and $3 million of the borrowings outstanding under our senior credit facility in the first and

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second quarters of 2003. These decreases were offset by a drawdown of $6 million in the fourth quarter of 2004 to fund a portion of the settlement of our gas imbalance liability, fund the repayment of $3 million of our outstanding senior subordinated notes and fund the redemption of our Series B mandatorily redeemable preferred stock that remained outstanding after the CSFB conversion of the majority of the Series B preferred stock and associated warrants to common stock. We paid $1.1 million in fees related to the amendment of our senior credit facility in March 2003.

      In 2002 we reduced the amount of outstanding borrowings under our senior credit facility by $15 million. We used a portion of the net proceeds from the sale of our Series B mandatorily redeemable preferred stock and warrants to purchase our common stock to pay $5 million of the borrowings outstanding under our senior credit facility. In December 2002, CSFB Private Equity purchased $10 million of our senior credit facility from Shell Capital and converted it into 2,564,102 shares of our common stock at an exercise price of $3.90 per share. We paid $684,000 million in deferred loan fees in 2002.

Senior Subordinated Notes

      In 2003, reduced the outstanding balance under our senior subordinated notes by approximately $3 million. In 2002, we borrowed an additional $4 million in senior subordinated notes. We paid $86,000 in fees related to the amendment of our senior subordinated credit agreement in December 2003.

Common Stock Transactions

	Shares Issued		Net Proceeds
			(In thousands)
2004 common stock transactions:
Sale of common stock under universal shelf registration statement(a)		2,598,500	$	22,105
Exercise of employee stock options		314,181		972
2003 common stock transactions:
Sale of common stock(b)		7,384,090	$	40,000
Exercise of employee stock options		309,760		829
2002 common stock transactions:
Unregistered shares issued pursuant to warrant exercise(c)		243,902	$	625
Exercise of employee stock options		132,507		296

(a)	The net proceeds from the sale were used to repay outstanding indebtedness under our senior credit facility. 2,300,000 shares were sold in July 2004 and 298,500 shares were sold in August 2004 when the underwriter exercised its over-allotment option.
(b)	The net proceeds from the sale were used to accelerate the amount of capital that we spent on our exploration and development program and reduce our outstanding indebtedness.
(c)	In December 2002, we issued 243,902 unregistered shares of our common stock to a group of institutional investors. This group of investors was led by affiliates of two members of our then current Board of Directors. At the time the warrants were exercised, one of these two board members was no longer a member of our board. For more information on the warrant exercise and the issuance of common stock, please see “Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities — Recent Issuance of Unregistered Securities.”

      For additional shares issued where we did not receive proceeds, see “Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities — Recent Issuance of Unregistered Securities.”

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Mandatorily Redeemable Preferred Stock

      In 2003, we redeemed $704,000 of our Series B mandatorily redeemable preferred stock that remained outstanding after the CSFB conversion of the majority of the Series B preferred stock.

      In December 2002, we issued $10 million ($9.4 million net of issuance costs) in Series B mandatorily redeemable preferred stock and warrants to purchase our common stock. Net proceeds from the offering were used to repay $5 million of the borrowings outstanding under our senior credit facility, fund our exploration and development activities and fund working capital obligations.

Other Matters

Derivative Instruments

      Our results of operations and operating cash flow are impacted by changes in market prices for oil and gas. We believe the use of derivative instruments, although not free of risk, allows us to reduce our exposure to oil and natural gas sales price fluctuations and thereby achieve a more predictable cash flow. While the use of derivative instruments limits the downside risk of adverse price movements, their use may also limit future revenues from favorable price movements. Moreover, our derivative contracts generally do not apply to all of our production and thus provide only partial price protection against declines in commodity prices. We expect that the amount of our derivative contracts will vary from time to time. See “— Risk Factors — Our Hedging Transactions May Not Prevent Losses” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

Effects of Inflation and Changes in Prices

      Our results of operations and cash flows are affected by changing oil and natural gas prices. If the price of oil and natural gas increases (decreases), there could be a corresponding increase (decrease) in revenues as well as the operating costs that we are required to bear for operations. Inflation has had a minimal effect on us.

Environmental and Other Regulatory Matters

      Our business is subject to certain federal, state and local laws and regulations relating to the exploration for and the development, production and marketing of oil and natural gas, as well as environmental and safety matters. Many of these laws and regulations have become more stringent in recent years, often imposing greater liability on a larger number of potentially responsible parties. Although we believe that we are in substantial compliance with all applicable laws and regulations, the requirements imposed by laws and regulations are frequently changed and subject to interpretation, and we cannot predict the ultimate cost of compliance with these requirements or their effect on our operations. Any suspensions, terminations or inability to meet applicable bonding requirements could materially adversely affect our financial condition and operations. Although significant expenditures may be required to comply with governmental laws and regulations applicable to us, compliance has not had a material adverse effect on our earnings or competitive position. Future regulations may add to the cost of, or significantly limit, drilling activity. See “— Risk Factors — We Are Subject To Various Governmental Regulations And Environmental Risks” and “Item 1. Business — Governmental Regulation” and “Item 1. Business — Environmental Matters.”

Risk Factors

      You should carefully consider the following risk factors, in addition to the other information set forth in this report. Each of these risk factors could adversely affect our business, operating results and financial condition.

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Our Level of Indebtedness May Adversely Affect Our Cash Available for Operations, Thus Limiting Our Growth, Our Ability to Make Interest and Principal Payments on Our Indebtedness as They Become Due and Our Flexibility to Respond to Market Changes.

      Our level of indebtedness will have several important effects on our operations, including those listed below.

•  We will dedicate a portion of our cash flow from operations to the payment of interest on our indebtedness and to the payment of our other current obligations, and will not have these cash flows available for other purposes.

•  The covenants in our credit facilities limit our ability to borrow additional funds or dispose of assets and may affect our flexibility in planning for, and reacting to, changes in business conditions.

•  Our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired.

•  We may be more vulnerable to economic downturns and our ability to withstand sustained declines in oil and natural gas prices may be impaired.

•  Since our indebtedness is subject to variable interest rates, we are vulnerable to increases in interest rates.

•  Our flexibility in planning for or reacting to changes in market conditions may be limited.

      We may incur additional debt in order to fund our exploration and development activities. A higher level of indebtedness increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and reduce our level of indebtedness depends on future performance. General economic conditions, oil and gas prices and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flow to pay the interest on our debt, and future working capital, borrowings and equity financing may not be available to pay or refinance such debt.

      In addition, under the terms of our senior credit facility, our borrowing base is subject to semi-annual redeterminations based in part on prevailing oil and natural gas prices. In the event the amount outstanding exceeds the redetermined borrowing base, we could be forced to repay a portion of our borrowings. We may not have sufficient funds to make such payments. If we do not have sufficient funds and are otherwise unable to negotiate renewals of our borrowings or arrange new financing, we may have to sell significant assets.

We Have Substantial Capital Requirements for Which We May Not Be Able to Obtain Adequate Financing.

      We make and will continue to make substantial capital expenditures in our exploration and development projects. Without additional capital resources, our drilling and other activities may be limited and our business, financial condition and results of operations may suffer. We may not be able to secure additional financing on reasonable terms or at all, and financing may not continue to be available to us under our existing or new financing arrangements.

Oil and Natural Gas Prices Fluctuate Widely and Low Prices Could Have a Material Adverse Impact on Our Business and Financial Results by Limiting Our Liquidity and Flexibility to Carry Out Our Drilling Program.

      Our revenues, operating results and future rate of growth depend highly upon the prices we receive for our oil and natural gas production. Historically, the markets for oil and natural gas have been volatile and

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are likely to continue to be volatile in the future. Market prices of oil and natural gas depend on many factors beyond our control, including:

•  worldwide and domestic supplies of oil and natural gas;

•  the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;

•  political instability or armed conflict in oil-producing regions;

•  the price and level of foreign imports;

•  the level of consumer demand;

•  the price and availability of alternative fuels;

•  the availability of pipeline capacity;

•  weather conditions;

•  domestic and foreign governmental regulations and taxes; and

•  the overall economic environment.

      We cannot predict future oil and natural gas price movements and prices often vary significantly. Significant declines in oil and natural gas prices for an extended period may have the following effects on our business:

•  limit our financial condition, liquidity, ability to finance planned capital expenditures and results of operations;

•  reduce the amount of oil and natural gas that we can produce economically;

•  cause us to delay or postpone some of our capital projects;

•  reduce our revenues, operating income and cash flow; and

•  reduce the carrying value of our oil and natural gas properties.

Our Derivative Contracts Could Reduce Revenues in a Rising Commodity Price Environment or Expose Us to Other Risks.

      In an attempt to reduce our sensitivity to energy price volatility, we may use derivative contracts that generally result in a fixed price or a range of minimum and maximum price limits over a specified time period. Derivative contracts limit the benefits we would otherwise realize if actual prices rise above the contract price.

      Our derivative contracts expose us to the risk of financial loss in certain circumstances. For example, if we do not produce our oil and natural gas reserves at rates equivalent to our derivative position, we would be required to satisfy our obligations under those derivative contracts on potentially unfavorable terms without the ability to offset that risk through sales of comparable quantities of our own production. This situation occurred during portions of 2000, due in part to our sale of certain producing reserves in mid-1999 and reduced our cash flow in 2000 by approximately $1.0 million. Additionally, because the terms of our derivative contracts are based on assumptions and estimates of numerous factors such as cost of production and pipeline and other transportation and marketing costs to delivery points, substantial differences between the prices we receive pursuant to our derivative contracts and our actual results could harm our anticipated profit margins and our ability to manage the risk associated with fluctuations in oil and natural gas prices. We also could be financially harmed if the counter parties to our derivative contracts prove unable or unwilling to perform their obligations under such contracts. Additionally, in the past, some of our derivative contracts required us to deliver cash collateral or other assurances of performance to the counter parties in the event that our payment obligations exceeded certain levels.

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Future collateral requirements are uncertain but will depend on arrangements with our counter parties and highly volatile natural gas and oil prices.

Exploratory Drilling Is a Speculative Activity That May Not Result in Commercially Productive Reserves and May Require Expenditures in Excess of Budgeted Amounts.

      Our future rate of growth depends highly upon the success of our exploratory drilling program. Exploratory drilling involves a higher risk that we will not encounter commercially productive natural gas or oil reservoirs than developmental drilling. We cannot predict the cost of drilling, and we may be forced to limit, delay or cancel drilling operations as a result of a variety of factors, including:

•  unexpected drilling conditions;

•  pressure or irregularities in formations;

•  equipment failures or accidents;

•  adverse weather conditions;

•  compliance with governmental requirements; and

•  shortages or delays in the availability of drilling rigs and the delivery of equipment.

      We may not be successful in our future drilling activities because even with the use of 3-D seismic and other advanced technologies, exploratory drilling is a speculative activity. We could incur losses because our use of 3-D seismic data and other advanced technologies requires greater pre-drilling expenditures than traditional drilling strategies. Even when fully utilized and properly interpreted, our 3-D seismic data and other advanced technologies only assist us in identifying subsurface structures and do not indicate whether hydrocarbons are in fact present in those structures. In addition, such seismic interpretations are not substantiated without drilling which may even invalidate previously accepted interpretations, require more processing and/or interpretation expense or condemn an area. Because we interpret the areas desirable for drilling from 3-D seismic data gathered over large areas, we may not acquire option and lease rights until after the seismic data is available and, in some cases, until the drilling locations are also identified. We may never lease, drill or produce oil or natural gas from these or any other potential drilling locations. We may not be successful in our drilling activities, our overall drilling success rate for activity within a particular province may not be maintained, and our completed wells may not ultimately produce our estimated economically recoverable reserves. Unsuccessful drilling activities could result in a significant decline in our production and revenues and materially harm our operations and financial condition by reducing our available cash and resources.

We Are Subject to Various Operating and Other Casualty Risks That Could Result in Liability Exposure or the Loss of Production and Revenues.

      Our operations are subject to hazards and risks inherent in drilling for and producing and transporting oil and natural gas, such as:

•  fires;

•  natural disasters;

•  formations with abnormal pressures;

•  blowouts, cratering and explosions; and

•  pipeline ruptures and spills.

      Any of these hazards and risks can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to our properties and the property of others.

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We May Not Have Enough Insurance to Cover All of the Risks We Face, Which Could Result in Significant Financial Exposure.

      We maintain insurance coverage against some, but not all, potential losses in order to protect against the risks we face. We may elect not to carry insurance if our management believes that the cost of insurance is excessive relative to the risks presented. If an event occurs that is not covered, or not fully covered, by insurance, it could harm our financial condition, results of operations and cash flows. In addition, we cannot fully insure against pollution and environmental risks.

We Cannot Control the Activities on Properties We Do Not Operate and Are Unable to Ensure Their Proper Operation and Profitability.

      We do not operate all of the properties in which we have an interest. As a result, we have limited ability to exercise influence over operations for these properties. The failure of an operator of our wells to adequately perform operations, or an operator’s breach of the applicable agreements, could reduce our production and revenues. The success and timing of our drilling and development activities on properties operated by others therefore depends upon a number of factors outside of our control, including the operator’s:

•  timing and amount of capital expenditures;

•  expertise and financial resources;

•  inclusion of other participants in drilling wells; and

•  use of technology.

The Marketability of Our Natural Gas Production Depends on Facilities That We Typically Do Not Own or Control That Could Result in a Curtailment of Production and Revenues.

      The marketability of our production depends in part upon the availability, proximity and capacity of natural gas gathering systems, pipelines and processing facilities. We generally deliver natural gas through gas gathering systems and gas pipelines that we do not own under interruptible or short term transportation agreements. Under the interruptible transportation agreements, the transportation of our gas may be interrupted due to capacity constraints on the applicable system, for maintenance or repair of the system, or for other reasons as dictated by the particular agreements. Our ability to produce and market natural gas on a commercial basis could be harmed by any significant change in the cost or availability of such markets, systems or pipelines.

Lower Oil and Natural Gas Prices May Cause Us to Record Ceiling Limitation Write-Downs Which Would Reduce Our Stockholders’ Equity.

      We use the full cost method of accounting for costs related to our oil and gas properties. Accordingly, we capitalize the cost to acquire, explore for and develop oil and gas properties. Under full cost accounting rules, the net capitalized cost of oil and gas properties may not exceed a “ceiling limit” that is based upon the present value of estimated future net revenues from proved reserves, discounted at 10%, plus the lower of the cost or fair market value of unproved properties. If net capitalized costs of oil and gas properties exceed the ceiling limit, we must charge the amount of the excess to earnings. This is called a “ceiling limitation write-down.” This charge does not impact cash flow from operating activities, but does reduce our stockholders’ equity. The risk that we will be required to write down the carrying value of our oil and gas properties increases when oil and gas prices are low or volatile. In addition, write-downs may occur if we experience substantial downward adjustments to our estimated proved reserves. Once incurred, a write-down of oil and gas properties is not reversible at a later date.

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Our Future Operating Results May Fluctuate and Significant Declines in Them Would Limit Our Ability to Invest in Projects.

      Our future operating results may fluctuate significantly depending upon a number of factors, including:

•  industry conditions;

•  prices of oil and natural gas;

•  rates of drilling success;

•  capital availability;

•  rates of production from completed wells; and

•  the timing and amount of capital expenditures.

      This variability could cause our business, financial condition and results of operations to suffer. In addition, any failure or delay in the realization of expected cash flows from operating activities could limit our ability to invest and participate in economically attractive projects.

The Failure to Replace Reserves in the Future Would Adversely Affect Our Production and Cash Flows.

      In general, production from oil and natural gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Except to the extent we conduct successful exploration and development activities or acquire properties containing proved reserves, or both, our proved reserves and production will decline as reserves are produced.

      The business of exploring for or developing reserves is capital intensive. Reductions in our cash flow from operations and limitations on or unavailability of external sources of capital may impair our ability to make the necessary capital investment to maintain or expand our asset base of oil and natural gas reserves. In addition, our future exploration and development activities may not result in additional proved reserves, and we may not be able to drill productive wells at acceptable costs.

We Are Subject to Uncertainties in Reserve Estimates and Future Net Cash Flows.

      There is substantial uncertainty in estimating quantities of proved reserves and projecting future production rates and the timing of development expenditures. No one can measure underground accumulations of oil and natural gas in an exact way. Accordingly, oil and natural gas reserve engineering requires subjective estimations of those accumulations. Estimates of other engineers might differ widely from those of our independent petroleum engineers. Accuracy of reserve estimates depends on the quality of available data and on engineering and geological interpretation and judgment. Our independent petroleum engineers may make material changes to reserve estimates based on the results of actual drilling, testing, and production. As a result, our reserve estimates often differ from the quantities of oil and natural gas we ultimately recover. Also, we make certain assumptions regarding future oil and natural gas prices, production levels, and operating and development costs that may prove incorrect. Any significant variance from these assumptions could greatly affect our estimates of reserves, the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, the classifications of reserves based on risk of recovery, and estimates of the future net cash flows. Because most of our reserve estimates are without the benefit of a lengthy production history and are calculated using volumetric analysis, those estimates are less reliable than estimates based on a lengthy production history. Volumetric analysis involves estimating the volume of a reservoir based on the net feet of pay of the structure and an estimation of the area covered by the structure based on seismic analysis.

      The present value of future net cash flows from our proved reserves is not necessarily the same as the current market value of our estimated natural gas and oil reserves. In accordance with the requirements of the Securities and Exchange Commission, we base the estimated discounted future net cash flows from

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our proved reserves on prices and costs on the day of estimate. However, actual future net cash flows from our oil and natural gas properties also will be affected by factors such as:

•  actual prices we receive for oil and natural gas;

•  the amount and timing of actual production;

•  supply and demand for oil and natural gas;

•  limits or increases in consumption by gas purchasers; and

•  changes in governmental regulations or taxation.

      The timing of both our production and our incurrence of expenses in connection with the development and production of oil and natural gas properties will affect the timing of actual future net cash flows from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net cash flows in compliance with the Securities and Exchange Commission reporting requirements may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and gas industry in general.

We Face Significant Competition, and Many of Our Competitors Have Resources in Excess of Our Available Resources.

      We operate in the highly competitive areas of oil and natural gas exploration, exploitation, acquisition and production. We face intense competition from a large number of independent, technology-driven companies as well as both major and other independent oil and natural gas companies in a number of areas such as:

•  seeking to acquire desirable producing properties or new leases for future exploration;

•  marketing our oil and natural gas production; and

•  seeking to acquire the equipment and expertise necessary to operate and develop those properties.

      Many of our competitors have financial and other resources substantially in excess of those available to us. This highly competitive environment could harm our business.

We Are Subject to Various Governmental Regulations and Environmental Risks That May Cause Us to Incur Substantial Costs.

      Our business is subject to laws and regulations promulgated by federal, state and local authorities, including the FERC, the EPA, the Texas Railroad Commission, the TCEQ and the Oklahoma Corporation Commission, relating to the exploration for, and the development, production and marketing of, oil and natural gas, as well as safety matters. Legal requirements are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. We may be required to make significant expenditures to comply with governmental laws and regulations.

      Our operations are subject to complex federal, state and local environmental laws and regulations, including CERCLA, RCRA, OPA and the Clean Water Act. Environmental laws and regulations change frequently, and the implementation of new, or the modification of existing, laws or regulations could harm us. The discharge of natural gas, oil, or other pollutants into the air, soil or water may give rise to significant liabilities on our part to the government and third parties and may require us to incur substantial costs of remediation.

Our Business May Suffer if We Lose Key Personnel.

      If we lose the services of our key management personnel or technical experts or are unable to attract additional qualified personnel, our business, financial condition, results of operations, development efforts and ability to grow could suffer. We have assembled a team of geologists, geophysicists and engineers who

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have considerable experience in applying 3-D seismic imaging technology to explore for and to develop oil and natural gas. We depend upon the knowledge, skill and experience of these experts to provide 3-D seismic imaging and to assist us in reducing the risks associated with our participation in oil and natural gas exploration and development projects. In addition, the success of our business depends, to a significant extent, upon the abilities and continued efforts of our management, particularly Ben M. Brigham, our Chief Executive Officer, President and Chairman of the Board. We have an employment agreement with Mr. Brigham, but do not have an employment agreement with any of our other employees.

Our Shares That Are Eligible for Future Sale May Have An Adverse Effect on the Price of Our Common Stock.

      Sales of substantial amounts of common stock, or a perception that such sales could occur, could adversely affect the market price of the common stock and could impair our ability to raise capital through the sale of our equity securities. As of March 10, 2005, one of our stockholders, together with its affiliates, owned 13,634,882 shares of our common stock. While none of these shares have been registered under the Securities Act, this stockholder has certain registration rights, that when exercised, could facilitate a sale of all or a portion of its shares.

Certain of Our Affiliates Control a Majority of Our Outstanding Common Stock, Which May Affect Your Vote as a Stockholder.

      Our directors, executive officers and 10% or greater stockholders, and certain of their affiliates beneficially own a majority of our outstanding common stock. Accordingly, these stockholders, as a group, will be able to control the outcome of stockholder votes, including votes concerning the election of directors, the adoption or amendment of provisions in our certificate of incorporation or bylaws, and the approval of mergers and other significant corporate transactions. The existence of these levels of ownership concentrated in a few persons makes it unlikely that any other holder of common stock will be able to affect our management or direction. These factors may also have the effect of delaying or preventing a change in our management or voting control.

Certain Anti-Takeover Provisions May Affect Your Rights as a Stockholder.

      Our certificate of incorporation authorizes our Board of Directors to issue up to 10 million shares of preferred stock without stockholder approval and to set the rights, preferences and other designations, including voting rights, of those shares as the Board of Directors may determine. In addition, our outstanding Series A preferred stock, our senior credit facility and our senior subordinated notes contain terms restricting our ability to enter into change of control transactions, including requirements to redeem or repay the Series A preferred stock, our senior credit facility and our senior subordinated notes upon a change in control. These provisions, alone or in combination with the other matters described in the preceding paragraph may discourage transactions involving actual or potential changes in our control, including transactions that otherwise could involve payment of a premium over prevailing market prices to holders of our common stock. We are also subject to provisions of the Delaware General Corporation Law that may make some business combinations more difficult.

The Market Price of Our Stock Is Volatile.

      The trading price of our common stock and the price at which we may sell securities in the future is subject to large fluctuations in response to any of the following:

•  limited trading volume in our stock;

•  changes in government regulations, quarterly variations in operating results;

•  our involvement in litigation;

•  general market conditions;

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•  the prices of oil and natural gas;

•  announcements by us and our competitors;

•  our liquidity;

•  our ability to raise additional funds; and

•  other events.

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Forward-Looking Statements

      This report and the documents incorporated by reference in this annual report on Form 10-K contain forward-looking statements within the meaning of the federal securities laws.

      These forward-looking statements include, among others, the following:

•  our growth strategies;

•  our ability to successfully and economically explore for and develop oil and gas resources;

•  anticipated trends in our business;

•  our future results of operations;

•  our liquidity and ability to finance our exploration and development activities;

•  market conditions in the oil and gas industry;

•  our ability to make and integrate acquisitions; and

•  the impact of governmental regulation.

      Forward-looking statements are typically identified by use of terms such as “may,” “will,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements may be expressed differently.

      You should be aware that our actual results could differ materially from those contained in the forward-looking statements. You should consider carefully the statements under “Risk Factors” and other sections of this prospectus, which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements.

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Item 7A.      Quantitative and Qualitative Disclosures About Market Risk

Management Opinion Concerning Derivative Instruments

      We use derivative instruments to manage exposure to commodity prices and interest rate risks. Our objectives for holding derivatives are to achieve a consistent level of cash flow to support a portion of our planned capital spending. Our use of derivative instruments for hedging activities could materially affect our results of operations in particular quarterly or annual periods since such instruments can limit our ability to benefit from favorable price movements. We do not enter into derivative instruments for trading purposes.

Fair Value of Derivative Contracts

      The fair value of our derivative contracts is determined based on counterparties’ estimates and valuation models. We did not change our valuation methodology during the year ended December 31, 2004. During 2004, we were party to natural gas swap contracts, natural gas three-way costless collars, oil swaps, oil collar contracts and interest rate swaps. See “Notes to the Consolidated Financial Statements — Note 12” for additional information regarding our derivative contracts. The following table reconciles the changes that occurred in the fair values of our open derivative contracts during 2004.

		Fair Value of
		Derivative
		Contracts
		(In thousands)
Estimated fair value of open contracts at December 31, 2003		$	(2,177	)
Changes in fair values of contracts:
	Fixed price natural gas swaps	$	(294	)
	Natural gas collars		(460	)
	Fixed price oil swaps		(618	)
	Oil collars		(1,948	)
	Interest rate swap		111
Contract settlements:
	Fixed price natural gas swaps	$	1,066
	Natural gas collars		787
	Fixed price oil swaps		1,073
	Oil collars		1,768
	Interest rate swap		—
Estimated fair value of open contracts at December 31, 2004		$	(692	)

      Based upon the market prices at December 31, 2004, we expect to transfer approximately $728,000 of the loss included on our balance sheet in accumulated other comprehensive income (loss) to earnings during the next twelve months when transactions actually occur.

Derivative Instruments and Hedging Activities

      We believe the use of derivative instruments, although not free of risk, allows us to reduce our exposure to oil and natural gas sales price fluctuations and thereby achieve a more predictable cash flow. While the use of derivative instruments limits the downside risk of adverse price movements, their use may also limit future revenues from favorable price movements. Moreover, our derivative contracts generally do not apply to all of our production and thus provide only partial price protection against declines in commodity prices. We expect that the amount of our derivative contracts will vary from time to time.

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      The gas derivative transactions are generally settled based upon the average of the reporting settlement prices on the NYMEX for the last three trading days of a particular contract month. The oil derivative transactions are generally settled based on the average reporting settlement prices on the NYMEX for each trading day of a particular calendar month.

      Our primary commodity market risk exposure is to changes in the prices related to the sale of our oil and natural gas production. The market prices for oil and natural gas have been volatile and are likely to continue to be volatile in the future. As such, we employ established policies and procedures to manage our exposure to fluctuations in the sales prices we receive for our oil and natural gas production using derivative instruments.

Cash Flow Hedges

      Our derivative contracts accounted for as cash flow hedges consisted of fixed-price swaps, costless collars (purchased put options and written call options) and the costless collar portion of a three-way costless collar (purchased put option options and written call options).

      Our fixed-price swap agreements are used to fix the sales price for our anticipated future oil and natural gas production. Upon settlement, we receive a fixed price for the hedged commodity and pay our counterparty a floating market price, as defined in each instrument. These instruments are settled monthly. When the floating price exceeds the fixed price for a contract month, we pay our counterparty. When the fixed price exceeds the floating price, our counterparty is required to make a payment to us. We have designated theses swap instruments as cash flow hedges designed to achieve a more predictable cash flow, as well as reduce our exposure to price volatility.

      We use costless collars to establish floor (purchased put option) and ceiling price (written call option) on our anticipated future oil and natural gas production. We received no net premiums when we entered into these option agreements. These instruments are settled monthly. When the settlement price for a period is above the ceiling price (written call option), we pay our counterparty. When the settlement price for a period is below the floor price (purchased put option), our counterparty is required to pay us. We have designated these collar instruments as cash flow hedges designed to achieve a more predictable cash flow, as well as reduce our exposure to price volatility.

      A three-way collar contract consists of a costless collar (purchased put option and written call option) plus a put (written put) sold by us with a price below the floor price (purchased put option) of the costless collar. We received no net premiums when we entered into these option agreements. These instruments are settled monthly. The written put requires us to make a payment to our counterparty if the settlement price for a period is below the written put price. Combining the costless collar (purchased put option and written call option) with the written put results in us being entitled to a net payment equal to the difference between the floor price (purchased put option) of the costless collar and the written put price if the settlement price is equal to or less than the written put price. If the settlement price is greater than the written put price, the result is the same as it would have been with a costless collar. This strategy enables us to increase the floor and the ceiling price of the collar beyond the range of a traditional costless collar while offsetting the associated cost with the sale of the written put. The put that we sell is not designated as a cash flow hedge.

Derivatives Not Designated as Hedges

      Our derivative positions included written put options that are not designated as hedges and are reflected at fair value on the balance sheet. These positions were entered into in conjunction with a costless collar to offset the cost of other option positions that are designated as hedges.

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      The following table reflects our open commodity derivative contracts at March 31, 2005, the associated volumes and the corresponding weighted average NYMEX reference price.

						Notional Amount
										Nymex
		Derivative				Gas		Oil		Reference
Settlement Period		Instrument		Hedge Strategy		(MMBTU)		(Barrels)		Price
Costless Collars
	01/01/05 - 03/31/05		Purchased put		Cash flow		90,000			$	4.00
			Written call		Cash flow		90,000				7.25
	01/01/05 - 03/31/05		Purchased put		Cash flow		67,500			$	4.25
			Written call		Cash flow		67,500				5.90
	01/01/05 - 03/31/05		Purchased put		Cash flow		45,000			$	4.25
			Written call		Cash flow		45,000				6.50
	01/01/05 - 03/31/05		Purchased put		Cash flow				9,000	$	23.00
			Written call		Cash flow				9,000		25.07
	01/01/05 - 03/31/05		Purchased put		Cash flow				23,000	$	23.00
			Written call		Cash flow				23,000		26.90
	01/01/05 - 06/30/05		Purchased put		Cash flow		633,500			$	5.00
			Written call		Cash flow		633.500				7.40
	01/01/05 - 06/30/05		Purchased put		Cash flow				29,000	$	29.00
			Written call		Cash flow				29,000		36.00
	01/01/05 - 06/30/05		Purchased put		Cash flow				23,530	$	29.00
			Written call		Cash flow				23,530		36.00
	04/01/05 - 06/30/05		Purchased put		Cash flow		91,000			$	4.00
			Written call		Cash flow		91,000				5.40
	04/01/05 - 06/30/05		Purchased put		Cash flow		45,500			$	4.25
			Written call		Cash flow		45,500				4.52
	04/01/05 - 06/30/05		Purchased put		Cash flow				6,825	$	23.00
			Written call		Cash flow				6,825		26.45
	04/01/05 - 10/31/05		Purchased put		Cash flow		420,000			$	5.45
			Written call		Cash flow		420,000				8.00
Three Way Costless Collars
	01/01/05 - 3/31/05		Purchased put		Cash flow		210,000			$	6.40
			Written call		Cash flow		210,000				7.64
			Written put		Undesignated		210,000				5.50
	07/01/05 - 10/31/05		Purchased put		Cash flow		400,000			$	6.00
			Written call		Cash flow		400,000				7.20
			Written put		Undesignated		400,000				5.00
	07/01/05 - 12/31/05		Purchased put		Cash flow				30,000	$	40.00
			Written call		Cash flow				30,000		53.00
			Written put		Undesignated				30,000		30.00
	07/01/05 - 10/31/05		Purchased put		Cash flow		250,000			$	6.75
			Written call		Cash flow		250,000				8.80
			Written put		Undesignated		250,000				5.50

Interest Rate Risk

      At December 31, 2004, we had $50.5 million in outstanding debt, of which $29.5 million was fixed rate debt. Our fixed rate debt consists of $20 million in senior subordinated notes and $9.5 million in mandatorily redeemable Series A preferred stock.

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      The estimated fair value of our senior subordinated notes at December 31, 2004, was $20 million.

      Dividends on our Series A preferred stock may be paid in cash at a rate of 6% per annum or paid in kind through the issuance of additional shares of preferred stock in lieu of cash at a rate of 8% per annum. Our option to pay dividends in kind expires October 31, 2005. The carrying value of the mandatorily redeemable Series A preferred stock approximates its fair value as this is the amount that we would have to pay to extinguish the preferred stock.

      The remaining $21 million in outstanding debt at December 31, 2004, was related to borrowings under our senior credit facility. At our option, borrowings under our senior credit facility bear interest at a rate equal to: (i) the base rate of Société Générale plus a margin which fluctuates from 0.25% to 1% depending on facility usage or (ii) Eurodollars (LIBOR) for one, two, three or six months plus a margin which fluctuates from 1.25% to 2% depending on facility usage. The weighted average interest rate on these borrowings at December 31, 2004, was 4.16%. A 10% increase in short-term interest rates on our floating-rate debt outstanding at December 31, 2004 would equal approximately 24 basis points. Such an increase in interest rates would impact our annual interest expense by approximately $51,000 assuming borrowed amounts under our senior credit facility remained at $21 million.

      Using the interest rate margins from our senior credit agreement that was amended and restated on January 21, 2005 and the Euro dollar rate that was in affect on our outstanding borrowings at December 31, 2004, a 10% increase in short-term interest would equal approximately 24 basis points. Given the margin to the Eurodollar rate that we pay pursuant to our amended and restated senior credit agreement, the impact to the interest expense that we pay on borrowings would be a decrease of $28,000. As the interest rate on borrowings outstanding under our senior credit facility is variable and is reflective of current market conditions, the carrying value approximates the fair value.

Item 8.      Financial Statements and Supplementary Data

      Our Consolidated Financial Statements required by this item are included on the pages immediately following the Index to Financial Statements appearing on page F-1.

Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

      We maintain disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. This evaluation included consideration of various accounting and financial reporting processes in an effort to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC. This evaluation also considered work related to our internal control over financial reporting.

      Based upon this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2004, as a result of the material weakness discussed below, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the requisite time periods. This not withstanding, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

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Management’s Report on Internal Control over Financial Reporting

      Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the design and operating effectiveness of our internal control over financial reporting as of December 31, 2004 based on the criteria described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

      A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2004, we did not maintain effective controls over the accounting for depletion expense and accumulated depletion pertaining to our proved oil and natural gas properties in accordance with accounting principles generally accepted in the United States of America. Specifically, our controls related to the preparation and review of the quarterly depletion computations were not adequate to ensure that the changes in depletion rate estimates used to determine depletion expense and the related accumulated depletion that are part of net proved oil and natural gas properties are only applied prospectively rather than to year-to-date production.

      This control deficiency resulted in the restatement of our 2003 and 2002 annual consolidated financial statements and 2004 and 2003 interim consolidated financial statements as well as an audit adjustment to the fourth quarter 2004 financial statements to reduce the depletion expense and the related accumulated depletion of net proved oil and natural gas property balances. Further, in the absence of appropriate remediation this control deficiency could result in a misstatement of depletion expense and the related accumulated depletion of net proved oil and natural gas property balances that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Therefore, we have concluded that this control deficiency constitutes a material weakness.

      Because of the material weakness described above, management has concluded that, as of December 31, 2004, we did not maintain effective internal control over financial reporting, based on the criteria in Internal Control — Integrated Framework issued by the COSO.

      Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein beginning on page F-2.

Changes in Internal Control over Financial Reporting

      There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities and Exchange Act of 1934) that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the design or operating effectiveness of our internal control over financial reporting. However, since year end, we have taken action to remediate the material weakness identified at December 31, 2004. Due to such remediation, our depletion rate at each respective period end will be applied to the respective current period production only, as required by accounting principles generally accepted in the United States of America.

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Item 9B.      Other Information

      On December 20, 2004, we entered into an amendment to our lease for the office space for our principal executive offices. The amendment extends the term of our lease by an additional five years and provides us with an improvement allowance, the right to extend the term for an additional five years and a right of first refusal with respect to additional space and the right to terminate the lease early for a termination fee. We inadvertently failed to make the timely disclosure on Form 8-K and are providing it herein.

PART III

Item 10.      Directors and Executive Officers of the Registrant

      The information required by this item is incorporated by reference to information under the caption “Proposal One—Election of Directors” and to the information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2005 Proxy Statement for our annual meeting of stockholders to be held on Wednesday, June 3, 2008. The 2005 Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2004.

      Pursuant to Item 401(b) of Regulation S-K, the information required by this item with respect to Brigham’s executive officers is set forth in Part I of this report.

Item 11.      Executive Compensation

      The information required by this item is incorporated herein by reference to the 2005 Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2004.

Item 12.      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      The information required by this item is incorporated herein by reference to the 2005 Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2004. See “Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” which sets forth certain information with respect to our equity compensation plans.

Item 13.      Certain Relationships and Related Transactions

      The information required by this item is incorporated herein by reference to the 2005 Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2004.

Item 14.      Principal Accounting Fees and Services

      The information required by this item is incorporated herein by reference to the 2005 Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2004.

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PART IV

Item 15.      Exhibits, Financial Statement Schedules

      (a)1. Consolidated Financial Statements: See Index to Financial Statements on page F-1.

         2. No schedules are required

   3.  Exhibits:

The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of the annual report.

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GLOSSARY OF OIL AND GAS TERMS

      The following are abbreviations and definitions of certain terms commonly used in the oil and gas industry and in this report. The definitions of proved developed reserves, proved reserves and proved undeveloped reserves have been abbreviated from the applicable definitions contained in Rule 4-10(a)(2-4) of Regulation S-X.

      3-D seismic. The method by which a three dimensional image of the earth’s subsurface is created through the interpretation of reflection seismic data collected over surface grid. 3-D seismic surveys allow for a more detailed understanding of the subsurface than do conventional surveys and contribute significantly to field appraisal, development and production.

      All-Sources Finding Costs. The cost associated with acquiring and developing proved oil and natural gas reserves determined on an Mcfe basis by dividing total net capital expenditures, excluding proceeds from the sale of proved oil and gas reserves, associated with drilling and completing of wells, acquiring acreage and geological and geophysical work during the identified period, by the estimated proved reserve additions from exploration and development activities, acquisitions of proved reserves and revisions of previous estimates during the same time period.

      Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to oil or other liquid hydrocarbons.

      Bcfe. One billion cubic feet of natural gas equivalent. In reference to natural gas, natural gas equivalents are determined using the ratio of 6 Mcf of natural gas to 1 Bbl of oil, condensate or natural gas liquids.

      Completion. The installation of permanent equipment for the production of oil or natural gas. Completion of the well does not necessarily mean the well will be profitable.

      Completion Rate. The number of wells on which production casing has been run for a completion attempt as a percentage of the number of wells drilled.

      Developed Acreage. The number of acres which are allocated or assignable to producing wells or wells capable of production.

      Development Well. A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

      Dry Well. A well found to be incapable of producing either oil or natural gas in sufficient quantities to justify completion of an oil or gas well.

      Exploratory Well. A well drilled to find and produce oil or natural gas in an unproved area, to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir, or to extend a known reservoir.

      Fault. A break in the rocks along which there has been movement of one side relative to the other side.

      Fault Block. A body of rocks bounded by one or more faults.

      Gross Acres or Gross Wells. The total acres or wells, as the case may be, in which we have a working interest.

      Lease Operating Expenses. The expenses, usually recurring, which pay for operating the wells and equipment on a producing lease.

      MBbl. One thousand barrels of oil or other liquid hydrocarbons.

      Mcf. One thousand cubic feet of natural gas.

      MMBbl. One million barrels of oil or other liquid hydrocarbons.

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      Mcfe. One thousand cubic feet of natural gas equivalents.

      MMBtu. One million Btu, or British Thermal Units. One British Thermal Unit is the quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

      MMcf. One million cubic feet of natural gas.

      MMcfe. One million cubic feet of natural gas equivalents.

      MMcfe/d. MMcfe per day.

      Net Acres or Net Wells. Gross acres or wells multiplied, in each case, by the percentage working interest we own.

      Net Production. Production that we own less royalties and production due others.

      Oil. Crude oil, condensate or other liquid hydrocarbons.

      Operator. The individual or company responsible for the exploration, development, and production of an oil or gas well or lease.

      Pay. The vertical thickness of an oil and gas producing zone. Pay can be measured as either gross pay, including non-productive zones or net pay, including only zones that appear to be productive based upon logs and test data.

      Pre-tax PV-10%. The pre-tax present value of estimated future revenues to be generated from the production of proved reserves calculated in accordance with Securities and Exchange Commission guidelines, net of estimated production and future development costs, using prices and costs as of the date of estimation without future escalation, without giving effect to non-property related expenses such as general and administrative expenses, debt service and depreciation, depletion and amortization, and discounted using an annual discount rate of 10%.

      Proved Developed Reserves. Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.

      Proved Reserves. The estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

      Proved Undeveloped Reserves. Reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.

      Royalty. An interest in an oil and gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner’s royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.

      Spud. Start drilling a new well (or restart).

      Standardized Measure. The after-tax present value of estimated future revenues to be generated from the production of proved reserves calculated in accordance with Securities and Exchange Commission guidelines, net of estimated production and future development costs, using prices and costs as of the date of estimation without future escalation, without giving effect to non-property related expenses such as general and administrative expenses, debt service and depreciation, depletion and amortization, and discounted using an annual discount rate of 10%.

      Trend. A geographical area that has been known to contain certain types of combinations of reservoir rock, sealing rock and trap types containing commercial amounts of hydrocarbons.

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      Working Interest. An interest in an oil and gas lease that gives the owner of the interest the right to drill for and produce oil and natural gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations.

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunder duly authorized, as of March 31, 2005.

Brigham Exploration Company

By:  /s/ Ben M. Brigham

Ben M. Brigham

Chief Executive Officer,

President and Chairman of the Board

      Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacity indicated have signed this report below as of March 31, 2005.

/s/ Ben M. Brigham Ben M. Brigham	Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer)
/s/ Eugene B. Shepherd, Jr. Eugene B. Shepherd, Jr.	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ David T. Brigham David T. Brigham	Executive Vice President — Land and Administration and Director
/s/ Harold D. Carter Harold D. Carter	Director
/s/ Stephen C. Hurley Stephen C. Hurley	Director
/s/ Stephen P. Reynolds Stephen P. Reynolds	Director
/s/ Hobart A. Smith Hobart A. Smith	Director
/s/ Steven A. Webster Steven A. Webster	Director
/s/ R. Graham Whaling R. Graham Whaling	Director

73

BRIGHAM EXPLORATION COMPANY

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2004 and 2003		F-4
Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002		F-5
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2004, 2003 and 2002		F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002		F-7
Notes to the Consolidated Financial Statements		F-8
Supplemental Oil and Gas Information (Unaudited)		F-36
Supplemental Quarterly Financial Information (Unaudited)		F-39

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Brigham Exploration Company:

      We have completed an integrated audit of Brigham Exploration Company’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

      In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Brigham Exploration Company and its subsidiaries (the “Company”) at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      As discussed in Note 2, the 2003 and 2002 consolidated financial statements have been restated to revise the computation of depletion expense related to net proved oil and natural gas properties.

      As discussed in Note 1, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations” on January 1, 2003, and adopted SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” on July 1, 2003.

Internal control over financial reporting

      Also, we have audited management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company did not maintain effective internal control over financial reporting as of December 31, 2004, because the Company did not maintain effective controls over the accounting for depletion expense and accumulated depletion pertaining to its proved oil and natural gas properties in accordance with generally accepted accounting principles generally accepted in the United States of America, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit.

      We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control,

F-2

and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment. As of December 31, 2004, the Company did not maintain effective controls over the accounting for depletion expense and accumulated depletion pertaining to its proved oil and natural gas properties in accordance with accounting principles generally accepted in the United States of America. Specifically, the Company’s controls related to the preparation and review of the quarterly depletion computations were not adequate to ensure that the changes in depletion rate estimates used to determine depletion expense and the related accumulated depletion of net proved oil and natural gas properties are only applied prospectively rather than to year-to-date production.

      This control deficiency resulted in the restatement of the Company’s 2003 and 2002 annual consolidated financial statements and 2004 and 2003 interim consolidated financial statements as well as an audit adjustment to the fourth quarter 2004 financial statements to reduce depletion expense and the related accumulated depletion of net proved oil and natural gas property balances. Further, this control deficiency could result in a misstatement of depletion expense and the related accumulated depletion of net proved oil and natural gas property balances that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Therefore, the Company concluded that this control deficiency constitutes a material weakness. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

      In our opinion, management’s assessment that Brigham Exploration Company did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the COSO. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Brigham Exploration Company has not maintained effective control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the COSO.

/s/ PricewaterhouseCoopers LLP

March 30, 2005

Houston, Texas

F-3

BRIGHAM EXPLORATION COMPANY

CONSOLIDATED BALANCE SHEETS

			December 31,
			2004			2003
						Restated
			(In thousands,
			except share data)
ASSETS
Current assets:
	Cash and cash equivalents		$	2,281		$	5,779
	Accounts receivable			17,573			11,143
	Deferred income taxes			239			307
	Other current assets			901			3,606
		Total current assets		20,994			20,835
Oil and natural gas properties, using the full cost method of accounting
	Proved			355,834			277,351
	Unproved			47,356			38,506
	Accumulated depletion			(141,211	)		(117,367	)
				261,979			198,490
Other property and equipment, net				1,209			1,219
Deferred income taxes				—			1,477
Deferred loan fees				1,745			2,501
Other noncurrent assets				380			460
		Total assets	$	286,307		$	224,982
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	22,465		$	19,806
	Royalties payable			6,072			5,280
	Accrued drilling costs			6,099			3,916
	Participant advances received			3,633			1,179
	Other current liabilities			2,225			5,398
		Total current liabilities		40,494			35,579
Senior credit facility				21,000			19,000
Senior subordinated notes				20,000			20,000
Series A Preferred Stock, mandatorily redeemable, $.01 par value, $20 stated and redemption value, 2,250,000 shares authorized, 475,986 and 439,722 shares issued and outstanding at December 31, 2004 and 2003, respectively				9,520			8,794
Deferred income taxes				9,031			—
Other noncurrent liabilities				2,986			2,498
Commitments and contingencies (Note 10)
Stockholders’ equity:
	Common stock, $.01 par value, 50 million shares authorized, 43,231,499 and 40,246,729 shares issued and 42,034,351 and 39,086,096 shares outstanding at December 31, 2004 and 2003, respectively			432			402
	Additional paid-in capital			175,270			151,263
	Treasury stock, at cost; 1,197,148 and 1,160,633 shares at December 31, 2004 and 2003, respectively			(4,707	)		(4,402	)
	Unearned stock compensation			(1,570	)		(1,816	)
	Accumulated other comprehensive income (loss)			(503	)		(1,040	)
	Retained earnings (accumulated deficit)			14,354			(5,296	)
		Total stockholders’ equity		183,276			139,111
		Total liabilities and stockholders’ equity	$	286,307		$	224,982

The accompanying notes are an integral part of these consolidated financial statements.

F-4

BRIGHAM EXPLORATION COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

			Year Ended December 31,
			2004			2003			2002
						Restated			Restated
			(In thousands,
			except per share data)
Revenues:
	Oil and natural gas sales		$	71,713		$	51,545		$	35,100
	Other revenue			515			132			76
				72,228			51,677			35,176
Costs and expenses:
	Lease operating			6,173			5,200			3,759
	Production taxes			3,107			2,477			1,977
	General and administrative			5,392			4,500			4,971
	Depletion of oil and natural gas properties			23,844			16,819			14,694
	Depreciation and amortization			722			629			440
	Accretion of discount on asset retirement obligations			159			142			—
				39,397			29,767			25,841
		Operating income		32,831			21,910			9,335
Other income (expense):
	Interest income			84			45			119
	Interest expense, net			(3,144	)		(4,815	)		(6,238	)
	Debt conversion expense			—			—			(630	)
	Other income (expense)			742			(601	)		(310	)
				(2,318	)		(5,371	)		(7,059	)
Income before income taxes and cumulative effect of change in accounting principle				30,513			16,539			2,276
Income tax benefit (expense):
	Current			—			—			—
	Deferred			(10,863	)		1,223			—
				(10,863	)		1,223			—
Income before cumulative effect of change in accounting principle				19,650			17,762			2,276
Cumulative effect of change in accounting principle, net of taxes				—			268			—
Net income				19,650			18,030			2,276
Less accretion and dividends on redeemable preferred stock				—			3,448			2,952
Net income (loss) available to common stockholders			$	19,650		$	14,582		$	(676	)
Net income (loss) per share available to common stockholders:
	Basic:
		Income before cumulative effect of change in accounting principle	$	0.49		$	0.62		$	(0.04	)
		Cumulative effect of change in accounting principle		—			0.01			—
			$	0.49		$	0.63		$	(0.04	)
	Diluted:
		Income before cumulative effect of change in accounting principle	$	0.47		$	0.51		$	(0.04	)
		Cumulative effect of change in accounting principle		—			0.01			—
			$	0.47		$	0.52		$	(0.04	)
	Weighted average common shares outstanding:
		Basic		40,445			23,363			16,138
		Diluted		41,616			34,354			16,138

The accompanying notes are an integral part of these consolidated financial statements.

F-5

BRIGHAM EXPLORATION COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

																Accumulated
																Other			Retained
			Common Stock				Additional						Unearned			Comprehensive			Earnings			Total
							Paid In			Treasury			Stock			Income			(Accumulated			Stockholders’
			Shares		Amounts		Capital			Stock			Compensation			(Loss)			Deficit)			Equity
			(In thousands)
Balance, December 31, 2001 (restated)				17,127	$	171	$	80,466		$	(4,165	)	$	(494	)	$	351		$	(25,602	)	$	50,727
Comprehensive income (loss):
	Net income (restated)			—		—		—			—			—			—			2,276			2,276
	Unrealized loss on cash flow hedges			—		—		—			—			—			(3,519	)		—			(3,519	)
	Net losses included in net income			—		—		—			—			—			121			—			121
		Comprehensive income (loss) (restated)																					(1,122	)
Exercise of employee stock options				133		1		295			—			—			—			—			296
Expiration of employee stock options				—		—		(46	)		—			—			—			—			(46	)
Forfeitures of restricted stock				—		—		(1	)		(41	)		15			—			—			(27	)
Revision of terms of employee stock options				—		—		596			—			—			—			—			596
Repurchases of common stock				—		—		—			(76	)		—			—			—			(76	)
Issuance of warrants				—		—		4,605			—			—			—			—			4,605
Warrants exercised for common stock				244		2		623			—			—			—			—			625
Common stock issued in exchange for warrants and convertible debt rights				550		6		(56	)		—			—			—			—			(50	)
Debt converted to common stock				2,564		26		9,906			—			—			—			—			9,932
In kind dividends on Series A mandatorily redeemable preferred stock				—		—		(2,689	)		—			—			—			—			(2,689	)
Accretion on Series A mandatorily redeemable preferred stock				—		—		(238	)		—			—			—			—			(238	)
In kind dividends on Series B mandatorily redeemable preferred stock				—		—		(24	)		—			—			—			—			(24	)
Accretion on Series B mandatorily redeemable preferred stock				—		—		(1	)		—			—			—			—			(1	)
Amortization of unearned stock compensation				—		—		—			—			267			—			—			267
Balance, December 31, 2002 (restated)				20,618	$	206	$	93,436		$	(4,282	)	$	(212	)	$	(3,047	)	$	(23,326	)	$	62,775
Comprehensive income (loss):
	Net income (restated)			—		—		—			—			—			—			18,030			18,030
	Unrealized gain on cash flow hedges			—		—		—			—			—			991			—			991
	Tax benefits related to cash flow hedges			—		—		—			—			—			561			—			561
	Net losses included in net income			—		—		—			—			—			455			—			455
		Comprehensive income (restated)																					20,037
Issuance of common stock				7,384		74		39,926			—			—			—			—			40,000
Issuance of restricted stock				—		—		1,831			—			(1,831	)		—			—			—
Issuance of stock options				—		—		296			—			(296	)		—			—			—
Exercise of employee stock options				310		3		826			—			—			—			—			829
Expiration of employee stock options				—		—		(19	)		—			—			—			—			(19	)
Forfeitures of restricted stock				—		—		—			(10	)		2			—			—			(8	)
Repurchases of common stock				—		—		—			(110	)		—			—			—			(110	)
Warrants exercised for common stock				11,935		119		18,415			—			—			—			—			18,534
In kind dividends on Series A mandatorily redeemable preferred stock				—		—		(2,350	)		—			—			—			—			(2,350	)
Accretion on Series A mandatorily redeemable preferred stock				—		—		(355	)		—			—			—			—			(355	)
In kind dividends on Series B mandatorily redeemable preferred stock				—		—		(711	)		—			—			—			—			(711	)
Accretion on Series B mandatorily redeemable preferred stock				—		—		(32	)		—			—			—			—			(32	)
Amortization of unearned stock compensation				—		—		—			—			521			—			—			521
Balance, December 31, 2003 (restated)				40,247	$	402	$	151,263		$	(4,402	)	$	(1,816	)	$	(1,040	)	$	(5,296	)	$	139,111
Comprehensive income (loss):
	Net income			—		—		—			—			—			—			19,650			19,650
	Unrealized gain on cash flow hedges			—		—		—			—			—			1,485			—			1,485
	Tax provisions related to cash flow hedges			—		—		—			—			—			(290	)		—			(290	)
	Net gains included in net income			—		—		—			—			—			(658	)		—			(658	)
		Comprehensive income																					20,187
Issuance of common stock				2,598		26		22,079			—			—			—			—			22,105
Issuance of restricted stock				—		—		514			—			(514	)		—			—			—
Vesting of restricted stock				72		1		(1	)		—			—			—			—			—
Exercise of employee stock options				314		3		969			—			—			—			—			972
Forfeitures of restricted stock				—		—		(131	)		(4	)		131			—			—			(4	)
Tax benefit from the exercise of stock options				—		—		577			—			—			—			—			577
Repurchases of common stock				—		—		—			(301	)		—			—			—			(301	)
Amortization of unearned stock compensation				—		—		—			—			629			—			—			629
Balance, December 31, 2004				43,231	$	432	$	175,270		$	(4,707	)	$	(1,570	)	$	(503	)	$	14,354		$	183,276

The accompanying notes are an integral part of these consolidated financial statements.

F-6

BRIGHAM EXPLORATION COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

					Year Ended December 31,
					2004			2003			2002
								Restated(1)			Restated(1)
					(In thousands)
Cash flows from operating activities:
	Net income				$	19,650		$	18,030		$	2,276
	Adjustments to reconcile net income to cash provided (used) by operating activities:
		Depletion of oil and natural gas properties				23,844			16,819			14,694
		Depreciation and amortization				722			629			440
		Interest paid through issuance of additional senior subordinated notes				—			1,196			1,076
		Interest paid through issuance of additional mandatorily redeemable preferred stock				726			340			—
		Amortization of deferred loan fees				766			1,053			1,191
		Accretion of discount on asset retirement obligations				159			142			—
		Market value adjustment for derivative instruments				(625	)		669			(263	)
		Stock option compensation expense				—			—			596
		Deferred income taxes				10,863			(1,223	)		—
		Cumulative effect of change in accounting principle				—			(268	)		—
		Changes in working capital and other items:
			Accounts receivable			(6,430	)		218			(2,248	)
			Other current assets			2,848			3,037			(4,534	)
			Accounts and royalties payable			3,451			6,092			10,703
			Other current liabilities			552			(4,975	)		5,060
			Noncurrent assets			—			—			2
			Noncurrent liabilities			(145	)		(68	)		(20	)
				Net cash provided by operating activities		56,381			41,691			28,973
Cash flows from investing activities:
	Additions to oil and natural gas properties					(84,439	)		(45,842	)		(27,696	)
	Proceeds from sale of oil and natural gas properties					92			427			871
	Additions to other property and equipment					(378	)		(349	)		(249	)
	(Increase) decrease in drilling advances paid					80			(325	)		(132	)
				Net cash used by investing activities		(84,645	)		(46,089	)		(27,206	)
Cash flows from financing activities:
	Proceeds from issuance of common stock, net of issuance costs					22,105			40,000			—
	Redemption of Series B mandatorily redeemable preferred stock					—			(704	)		—
	Proceeds from issuance of preferred stock and warrants					—			—			9,356
	Proceeds from issuance of senior subordinated notes and warrants					—			—			4,000
	Proceeds from exercise of employee stock options					972			829			296
	Proceeds from exercise of warrants					—			—			625
	Fees paid due to common stock exchange for warrants					—			—			(50	)
	Repurchases of common stock					(301	)		(110	)		(76	)
	Increase in senior credit facility					33,000			6,000			—
	Repayment of senior credit facility					(31,000	)		(47,000	)		(5,000	)
	Principal payments on senior subordinated notes					—			(2,993	)		—
	Principal payments on capital lease obligations					—			—			(28	)
	Deferred loan fees paid					(10	)		(1,163	)		(684	)
				Net cash provided (used) by financing activities		24,766			(5,141	)		8,439
Net increase (decrease) in cash and cash equivalents						(3,498	)		(9,539	)		10,206
Cash and cash equivalents, beginning of year						5,779			15,318			5,112
Cash and cash equivalents, end of year					$	2,281		$	5,779		$	15,318

(1)  Only individual line items in cash flows from operating activities have been restated. Total cash flows from continuing operating, investing and financing activities were unaffected.

The accompanying notes are an integral part of these consolidated financial statements.

F-7

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Operations

      Brigham Exploration Company is a Delaware corporation formed on February 25, 1997 for the purpose of exchanging its common stock for the common stock of Brigham, Inc. and the partnership interests of Brigham Oil & Gas, L.P. (the “Partnership”). Hereinafter, Brigham Exploration Company and the Partnership are collectively referred to as “Brigham.” Brigham, Inc. is a Nevada corporation whose only asset is its ownership interest in the Partnership. The Partnership was formed in May 1992 to explore and develop onshore domestic oil and natural gas properties using 3-D seismic imaging and other advanced technologies. Since its inception, the Partnership has focused its exploration and development of oil and natural gas properties primarily in the onshore Texas Gulf Coast, the Anadarko Basin and West Texas.

Summary of Significant Accounting Policies

Use of Estimates

      The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to proved oil and natural gas reserve volumes and the future development costs as well as estimates relating to certain oil and natural gas revenues and expenses. Actual results may differ from those estimates.

Principles of Consolidation

      The accompanying financial statements include the accounts of Brigham and its wholly owned subsidiaries, and its proportionate share of assets, liabilities and income and expenses of the limited partnerships in which Brigham, or any of its subsidiaries has a participating interest. All significant intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents

      Brigham considers all highly liquid financial instruments with an original maturity of three months or less to be cash equivalents.

Property and Equipment

      Brigham uses the full cost method of accounting for oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including certain payroll, asset retirement costs, other internal costs, and interest incurred for the purpose of finding oil and natural gas reserves, are capitalized. Internal costs capitalized are directly attributable to acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities. Costs associated with production and general corporate activities are expensed in the period incurred.

      Proceeds from the sale of oil and natural gas properties are applied to reduce the capitalized costs of oil and natural gas properties unless the sale would significantly alter the relationship between capitalized costs and proved reserves, in which case a gain or loss is recognized.

      Capitalized costs associated with impaired properties and capitalized costs related to properties having proved reserves, plus the estimated costs of future development, asset retirement costs under Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143) are amortized using the unit-of-production method based on proved reserves. Capitalized costs of oil and gas properties, net of accumulated amortization, are limited to the total of estimated future net cash flows

F-8

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

from proved oil and natural gas reserves, discounted at ten percent, plus the cost of unevaluated properties. There are many factors, including global events that may influence the production, processing, marketing and valuation of oil and natural gas. A reduction in the valuation of oil and natural gas properties resulting from declining prices or production could adversely impact depletion rates and capitalized cost limitations. Capitalized costs associated with properties that have not been evaluated through drilling or seismic analysis, including exploration wells in progress at December 31, are excluded from the unit-of-production amortization. Exclusions are adjusted annually based on drilling results and interpretative analysis.

      Other property and equipment, which primarily consists of 3-D seismic interpretation workstations, is depreciated on a straight-line basis over the estimated useful lives of the assets after considering salvage value. Estimated useful lives are as follows:

Furniture and fixtures	10 years
Machinery and equipment	5 years
3-D seismic interpretation workstations and software	3 years

      Betterments and major improvements that extend the useful lives are capitalized while expenditures for repairs and maintenance of a minor nature are expensed as incurred.

Revenue Recognition

      Brigham recognizes crude oil revenues using the sales method of accounting. Under this method, Brigham recognizes revenues when oil is delivered and title transfers.

      Brigham recognizes natural gas revenues using the entitlements method of accounting. Under this method, revenues are recognized based on Brigham’s entitled ownership percentage of sales of natural gas to purchasers. Gas imbalances occur when Brigham sells more or less than its entitled ownership percentage of total natural gas production. When Brigham receives less than its entitled share, a receivable is recorded. When Brigham receives more than its entitled share, a liability is recorded.

      The following gas imbalances were recorded as of December 31, 2003 (dollars in thousands):

	2003
	Value		MMcf
Gas imbalance receivable	$	2,477		451
Gas imbalance payable		2,064		505

Derivative Instruments and Hedging Activities

      Brigham uses derivative instruments to manage market risks resulting from fluctuations in commodity prices of natural gas and crude oil. Brigham periodically enters into commodity contracts, including price swaps, caps and floors, which require payments to (or receipts from) counterparties based on the differential between a fixed price and a variable price for a fixed quantity of natural gas or crude oil without the exchange of underlying volumes. The notional amounts of these financial instruments are based on expected production from existing wells.

      Derivatives are recorded on the balance sheet at fair value and changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. Brigham’s derivatives consist primarily of cash flow hedge transactions in which Brigham is hedging the variability of cash flows related to a forecasted transaction. Changes in the fair value of these derivative instruments designated as cash flow hedges are reported in other comprehensive income and reclassified to earnings in the periods in which the contracts are settled. The ineffective portion of the cash

F-9

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

flow hedges is recognized in current period earnings as other income (expense). Gains and losses on derivative instruments that do not qualify for hedge accounting are included in other income (expense) in the period in which they occur. The resulting cash flows from derivatives are reported as cash flows from operating activities.

      At the inception of a derivative contract, Brigham may designate the derivative as a cash flow hedge. For all derivatives designated as cash flow hedges, Brigham formally documents the relationship between the derivative contract and the hedged items, as well as the risk management objective for entering into the derivative contract. To be designated as a cash flow hedge transaction, the relationship between the derivative and the hedged items must be highly effective in achieving the offset of changes in cash flows attributable to the risk both at the inception of the derivative and on an ongoing basis. Brigham measures hedge effectiveness on a quarterly basis and hedge accounting is discontinued prospectively if it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item. Gains and losses deferred in accumulated other comprehensive income related to cash flow hedge derivatives that become ineffective remain unchanged until the related production is delivered. If Brigham determines that it is probable that a hedged forecasted transaction will not occur, deferred gains or losses on the hedging instrument are recognized in earnings immediately. See Note 11 for a description of the derivative contracts which Brigham executes.

Other Comprehensive Income (Loss)

      Brigham follows the provisions of Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” which establishes standards for reporting comprehensive income. In addition to net income, comprehensive income includes all changes in equity during a period, except those resulting from investments and distributions to stockholders of Brigham.

      The components of other comprehensive income (loss) for the years ended December 31, 2004, 2003 and 2002 follow (in thousands):

		2004			2003			2002
Balance, beginning of year		$	(1,040	)	$	(3,047	)	$	351
	Current period settlements reclassified to earnings		4,694			6,692			1,847
	Current period change in fair value of hedges		(3,209	)		(5,701	)		(5,366	)
	Tax benefits related to cash flow hedges		(290	)		561			—
	Net (gains) losses included in earnings		(658	)		455			121
Balance, end of year		$	(503	)	$	(1,040	)	$	(3,047	)

Stock Based Compensation

      Brigham accounts for employee stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”. Accordingly, Brigham has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123).

F-10

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Under SFAS 123, the fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants during the years ended December 31, 2004, 2003 and 2002:

	2004			2003			2002
Risk-free interest rate		3.7	%		3.7	%		4.1	%
Expected life (in years)		3.9			5			7
Expected volatility		43	%		48	%		102	%
Expected dividend yield		—			—			—
Weighted average fair value per share of stock compensation	$	3.31		$	2.98		$	3.44

      The Black-Scholes valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are transferable. Additionally, the assumptions required by the valuation model are highly subjective. Because Brigham’s stock options have significantly different characteristics from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the model does not necessarily provide a reliable single measure of the fair value of Brigham’s stock options.

      Had compensation cost for Brigham’s stock options been determined based on the fair market value at the grant dates of the awards consistent with the methodology prescribed by SFAS 123 as amended by SFAS 148, Brigham’s net income (loss) and net income (loss) per share for the years ended December 31, 2004, 2003 and 2002 would have been the pro forma amounts indicated below:

			Year Ended December 31,
			2004			2003			2002
Net income (loss) available to common stockholders (in thousands):
	As reported (restated)		$	19,650		$	14,582		$	(676	)
	Add back: Stock compensation expense previously included in net income			434			282			101
	Effect of total employee stock-based compensation expense, determined under fair value method for all awards			(3,189	)		(528	)		(513	)
	Pro forma		$	16,895		$	14,336		$	(1,088	)
	Basic:
		As reported (restated)	$	0.49		$	0.63		$	(0.04	)
		Pro forma		0.42			0.62			(0.07	)
	Diluted:
		As reported (restated)	$	0.47		$	0.52		$	(0.04	)
		Pro forma		0.41			0.52			(0.07	)

Income Taxes

      Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the tax rate in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of the enacted rate change. Deferred tax assets are reduced by a valuation allowance when, in the opinion of

F-11

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Deferred Loan Fees

      Deferred loan fees incurred in connection with the issuance of debt are recorded on the balance sheet as deferred assets in other noncurrent assets. The debt issue costs are amortized to interest expense over the life of the debt using the straight-line method. The results obtained using the straight-line method are not materially different than those that would result from using the effective interest method.

Segment Information

      All of Brigham’s oil and natural gas properties and related operations are located onshore in the United States and management has determined that Brigham has one reportable segment.

Treasury Stock

      Treasury stock purchases are recorded at cost. Upon reissuance, the cost of treasury shares held is reduced by the average purchase price per share of the aggregate treasury shares held.

Asset Retirement Obligations

      In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143). SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. Brigham adopted this standard as required on January 1, 2003. The following pro forma data summarizes Brigham’s net income (loss) and net income (loss) per share for the years ended December 31 2004, 2003 and 2002 as if Brigham had adopted the provisions of SFAS 143 on January 1, 2002.

		Year Ended
		December 31,
		2003			2002
		(In thousands, except
		per share amounts)
Pro forma asset retirement obligations		$	2,320		$	1,931
Net income (loss), as reported (restated)		$	14,582		$	(676	)
Pro forma adjustments to reflect
retroactive adoption of SFAS 143			(268	)		155
Pro forma net income (loss)		$	14,314		$	(521	)
Net income (loss) per share:
	Basic — as reported (restated)	$	0.63		$	(0.04	)
	Basic — pro forma	$	0.61		$	(0.03	)
	Diluted — as reported (restated)	$	0.52		$	(0.04	)
	Diluted — pro forma	$	0.51		$	(0.03	)

F-12

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Mandatorily Redeemable Preferred Stock

      In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS 150). SFAS 150 requires an issuer to classify certain financial instruments within its scope, such as mandatorily redeemable preferred stock, as liabilities (or assets in some circumstances). Brigham adopted this standard as required on July 1, 2003. Upon adoption, approximately $8 million of the mandatorily redeemable Series A and B preferred stock were within the scope of SFAS 150 and accordingly were reclassified to long term debt and dividends on the reclassified amount of mandatorily redeemable Series A and B preferred stock have been included in operations as additional interest expense of approximately $340,000. The remaining approximate $18.3 million balance of mandatorily redeemable preferred stock at July 1, 2003, was not reclassified to long term debt because these instruments did not meet the criteria of mandatorily redeemable financial instruments as defined by SFAS 150. SFAS 150 defines a financial instrument as mandatorily redeemable if it embodies an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date(s) or upon an event certain to occur. The remaining balance of mandatorily redeemable Series A and B preferred stock at July 1, 2003, did not embody an unconditional obligation requiring Brigham to transfer its assets to redeem the instruments. The $8 million reclassified to long term debt represents shares of mandatorily redeemable Series A and B preferred stock that must be settled with Brigham assets and thus are within the scope of SFAS 150. The shares remaining at December 31, 2004 and 2003 were issued to satisfy dividend requirements.

New Pronouncements

      In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, ”Share-Based Payment” (SFAS 123R), which is a revision of SFAS 123 and supersedes APB Opinion No. 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be valued at fair value on the date of grant, and to be expensed over the applicable vesting period. Pro forma disclosure of the income statement effects of share-based payments is no longer an alternative. SFAS 123R is effective for all stock-based awards granted on or after July 1, 2005. In addition, companies must also recognize compensation expense related to any awards that are not fully vested as of the effective date. Compensation expense for the unvested awards will be measured based on the fair value of the awards previously calculated in developing the pro forma disclosures in accordance with the provisions of SFAS 123. Brigham is currently assessing the impact of adopting SFAS 123R to its consolidated financial statements.

      In September 2004, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 106 (SAB 106) which provides guidance regarding the interaction of SFAS 143 with the calculation of depletion and the full cost ceiling test of oil and gas properties under the full cost accounting rules of the SEC. The guidance provided in SAB 106 is not expected to have a material effect on Brigham’s consolidated financial position, results of operations or cash flows.

      In October 2004, the American Jobs Creation Act of 2004 (AJCA) was signed into law. In December 2004, the FASB issued Staff Position No. 109-1 (FSP 109-1), “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” and Staff Position No. 109-2 (FSP 109-2), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004”. FSP 109-1 clarifies that the manufacturer’s tax deduction provided for under the AJCA should be accounted for as a special deduction in accordance with SFAS No. 109 and not as a tax rate reduction. FSP 109-2 provides accounting and disclosure guidance for the repatriation of certain foreign earnings to a U.S. taxpayer as provided for in the AJCA. Brigham does

F-13

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

not expect that the tax benefits resulting from the AJCA will have a material impact on its financial statements.

2.     Restatement

      Brigham utilizes the full cost method of accounting for its proved oil and natural gas properties included in the consolidated financial statements. During March 2005, in conjunction with preparation of the financial statements for the year ended December 31, 2004, management evaluated the manner in which Brigham historically accounted for depletion expense associated with our oil and natural gas properties. Historically, Brigham has calculated a depletion rate at the end of each period within the year based on its updated reserve estimate. This depletion rate has then been retroactively applied to year-to-date production with the adjustment to previously recorded depletion expense recorded in the current quarter. Brigham has determined that the revised depletion rate should have been applied on a prospective basis to production in the most current quarterly period only. Therefore, management determined it had not properly accounted for depletion expense and related accumulated depletion that are a part of the net proved oil and natural gas properties. As a result of this conclusion, Brigham has restated its previously issued financial statements for the years ended December 31, 2003 and 2002 to reflect the revised method of computing depletion expense, and reduced its accumulated deficit by $1,126,000 as of January 1, 2002 to reflect the impact of the revised method of depletion expense for prior years.

      The total cumulative impact of the restatement that affected stockholders’ equity as of December 31, 2004 was an increase in stockholders’ equity of approximately $766,000, which includes an increase in beginning stockholders’ equity as of January 1, 2002 of approximately $1,126,000. The overall financial increase on stockholders’ equity of the restatement as of each year end was as follows (in thousands):

		Total
December 31, 2001(1)		$	1,126
December 31, 2002(2)			(100	)
December 31, 2003(2)			(260	)
	Total	$	766

(1)	The adjustment as of December 31, 2001 represents an opening retained earnings adjustment on January 1, 2002.
(2)	The adjustment represents the retained earnings impact of the restatement to net income in the respective period.

      As to the individual financial statement line items, our historical consolidated financial statements for the years ended December 31, 2003 and 2002, reflect the effects of the restatement on (i) historical depletion expense and its effects on accumulated depreciation, (ii) the impact of income taxes and (iii) basic and diluted earnings per share. A summary of the effects of the restatement on reported amounts for the years ended December 31, 2003 and 2002 is presented below. For supplemental quarterly information, see Supplemental Quarterly Financial Information (Unaudited).

F-14

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		December 31, 2003									December 31, 2002
		As									As
		Previously									Previously
		Reported			Adjustment			As Restated			Reported			Adjustment		As Restated
		(In thousands)
Consolidated Balance Sheets:
	Accumulated depletion	$	(118,546	)	$	1,179		$	(117,367	)	$	(102,414	)	$	1,026	$	(101,388	)
	Oil and natural gas properties, net		197,311			1,179			198,490			164,980			1,026		166,006
	Deferred income tax asset		1,890			(413	)		1,477			—			—		—
	Total stockholders’ equity		138,345			766			139,111			61,749			1,026		62,775

			Year Ended December 31, 2003							Year Ended December 31, 2002
			As							As
			Previously					As		Previously						As
			Reported		Adjustment			Restated		Reported			Adjustment			Restated
			(In thousands, except per share amounts)
Consolidated Statements of Operations:
	Depletion of oil and natural gas properties		$	16,972	$	(153	)	$	16,819	$	14,594		$	100		$	14,694
	Deferred income tax benefit (expense)			1,636		(413	)		1,223		—			—			—
	Net income (loss) available to common stockholders			14,842		(260	)		14,582		(576	)		(100	)		(676	)
	Net income (loss) per share available to common stockholders:
		Basic	$	0.64	$	(0.01	)	$	0.63	$	(0.04	)	$	—		$	(0.04	)
		Diluted	$	0.53	$	(0.01	)	$	0.52	$	(0.04	)	$	—		$	(0.04	)

      The restatement did not have any impact on total cash flows from operations, investing or financing activities.

3. Property and Equipment

      Property and equipment, at cost, are summarized as follows (in thousands):

		December 31,
		2004			2003
					(Restated)
Oil and natural gas properties		$	403,190		$	315,857
Accumulated depletion			(141,211	)		(117,367	)
			261,979			198,490
Other property and equipment:
	3-D seismic interpretation workstations and software		2,725			2,559
	Office furniture and equipment		2,784			2,572
	Accumulated depreciation		(4,300	)		(3,912	)
			1,209			1,219
		$	263,188		$	199,709

      Brigham capitalizes certain payroll and other internal costs directly attributable to acquisition, exploration and development activities as part of its investment in oil and natural gas properties over the periods benefited by these activities. Capitalized costs do not include any costs related to production,

F-15

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

general corporate overhead, or similar activities. Capitalized costs are summarized as follows for the years ended December 31, 2004, 2003 and 2002 (in thousands):

	Year Ended December 31,
	2004		2003		2002
Capitalized certain payroll and other internal costs	$	4,872	$	4,621	$	4,220
Capitalized interest costs		1,195		818		878
	$	6,067	$	5,439	$	5,098

4. Senior Credit Facility and Senior Subordinated Notes

		December 31,
		2004		2003
		(In thousands)
Senior Credit Facility		$	21,000	$	19,000
Senior Subordinated Notes			20,000		20,000
Total Debt		$	41,000	$	39,000
	Less: Current Maturities		—		—
	Total Long-Term Debt	$	41,000	$	39,000

Senior Credit Facility

      As of December 31, 2004, Brigham had $21 million in borrowings outstanding under its senior credit facility, which was put in place in March 2003. The senior credit facility provides for a maximum $80 million in commitments, a borrowing base of $68.5 million and matures in March 2006 which was extended to March 2009 during January 2005. Principal outstanding under the senior credit facility is due at maturity, with interest due quarterly for base rate tranches or periodically as London Interbank Offered Rate (LIBOR) tranches mature. The annual interest rate for borrowings under the senior credit facility is either the base rate of Société Générale or LIBOR (2.4175% on December 31, 2004), at Brigham’s election, plus a margin that varies according to facility usage (1.75% on December 31, 2004). Obligations under the senior credit facility are secured by substantially all of Brigham’s oil and natural gas properties.

      The collateral value and borrowing base are redetermined periodically. The unused portion of the committed borrowing base is subject to an annual commitment fee of 0.5% at December 31, 2004.

      The senior credit facility agreement contains various covenants and restrictive provisions, which limit Brigham’s ability to incur additional indebtedness, sell properties, purchase or redeem capital stock, make investments or loans, create liens and make certain acquisitions. The senior credit facility requires Brigham to maintain a current ratio (as defined) of at least 1 to 1 and an interest coverage ratio (as defined) of at least 3.25 to 1.

      In January 2005, the senior credit facility was amended and restated to provide for revolving credit borrowings up to a maximum of $100 million at any one time outstanding, with borrowings not to exceed a borrowing base determined at least semiannually. Brigham’s initial borrowing base under the amended and restated senior credit facility is $68.5 million. Brigham also extended the maturity date from March 2006 to March 2009.

      Borrowings under the January 2005 amended and restated senior credit facility bear interest, at Brigham’s election, at a base rate or LIBOR, plus in each case an applicable margin. The applicable interest rate margin varies from 0.25% to 1.0% in the case of borrowings based on the base rate and from

F-16

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

1.25% to 2.0% in the case of borrowings based on LIBOR, depending on the utilization level. In addition, the unused portion of the committed borrowing base is subject to an annual commitment fee that varies according to facility usage. The interest coverage ratio (as defined) under the January 2005 amended and restated senior credit facility was reduced to at least 3 to 1. Other covenants remained unchanged from the March 2003 second amended and restated senior credit facility.

Senior Subordinated Notes

      As of December 31, 2004, Brigham had $20 million of senior subordinated notes outstanding. The senior subordinated notes are secured obligations ranking junior to Brigham’s senior credit facility. The terms of the senior subordinated notes were amended in March 2003 in order to have the covenants and other features of the notes mirror those of the senior credit facility that was put in place simultaneously. The terms of the senior subordinated notes were further amended in December 2003 resulting in a payment to reduce the outstanding balance of the notes to $20 million, reduce the interest rate and extend the maturity of the notes from October 2005 until March 2009. Simultaneous with the completion of the December 2003 amendment, Brigham entered into an interest rate swap contract to exchange the floating rate coupon for a fixed rate coupon through the new maturity date. In connection with the December 2003 amendment, Brigham agreed to an additional covenant, which requires that Brigham maintain a ratio of risked net present value discounted at 9% to total debt (as defined) of at least 1.5 to 1. The terms of the senior subordinated notes were amended again in January 2005 to further reduce the interest rate paid on the notes, with such reduction retroactive to October 1, 2004. Prior to the January 2005 amendment, the senior subordinated notes bore interest at LIBOR plus a margin of 5.05% per annum. As a consequence of the January 2005 amendment, the interest rate was reduced to LIBOR plus a margin of 3.9%. As a consequence of the interest rate swap and the January 2005 amendment, the senior subordinated notes paid a 7.61% fixed rate coupon per annum at December 31, 2004.

      Through October 2003, Brigham had the option to pay up to 50% of the interest payments on the senior subordinated notes through the issuance of additional senior subordinated notes in lieu of cash. For the years ended December 31, 2003, and 2002, Brigham exercised this option and issued an additional $1.2 and $1.1 million, respectively, of senior subordinated notes.

F-17

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Preferred Stock

Series A Mandatorily Redeemable Preferred Stock

      The following table reflects the outstanding shares of Series A mandatorily redeemable preferred stock and the activity related thereto for the years ended December 31, 2004 and 2003 (in thousands, except share amounts):

		Year Ended				Year Ended
		December 31, 2004				December 31, 2003
		Shares		Amounts		Shares			Amounts
Series A mandatorily redeemable preferred stock:
	Balance, beginning of year		439,722	$	8,794		1,765,132		$	19,540
	Dividends paid in kind		36,264		726		132,490			2,650
	Accretion		—		—		—			355
			36,264		726		132,490			3,005
	Forced redemption of October 2000 issuance		—		—		(1,000,002	)		(9,060	)
	Forced redemption of March 2001 issuance		—		—		(457,898	)		(4,691	)
			—		—		(1,457,900	)		(13,751	)
	Balance, end of year		475,986	$	9,520		439,722		$	8,794

      In October 2000, Brigham designated 1,500,000 shares of preferred stock as Series A Preferred Stock, and in November 2000, issued 1,000,000 shares of mandatorily redeemable preferred stock (Series A Preferred Stock) and warrants to purchase 6,666,667 shares of Brigham’s common stock (Series A — Tranche 1 Warrants) for net proceeds of $19.8 million.

      The Series A Preferred Stock has a par value of $.01 per share and a stated value of $20 per share. The Series A Preferred Stock is cumulative and pays dividends quarterly at a rate of 6% per annum of the stated value if paid in cash or 8% per annum of the stated value if paid in kind (PIK) through the issuance of additional Series A Preferred Stock in lieu of cash. At Brigham’s option, up to 100% of the dividend payments on the Series A Preferred Stock can be paid by the issuance of PIK dividends through October 2005. The Series A Preferred Stock matures in November 2010 and is redeemable at Brigham’s option at 100% or 101% of stated value (depending upon certain conditions) at anytime prior to maturity. The Series A Preferred Stock does not generally have any voting rights, except for certain approval rights and as required by law.

      The Series A — Tranche 1 Warrants were issued with a term of ten years, an exercise price of $3.00 per share and a right that allowed Brigham to require the exercise of the warrants in the event Brigham’s common stock traded above $5.00 per share for 60 consecutive trading days. The exercise price of the Series A — Tranche 1 Warrants was payable either in cash or in shares of the Series A Preferred Stock valued at liquidation value plus accrued dividends. The Series A — Tranche 1 Warrants were valued at $11.5 million using the Black-Scholes Option Pricing model and were recorded as additional paid-in capital in 2000. This discount accreted to the Series A Preferred Stock dividends during the life of the securities using the effective interest method.

      In November 2003, Brigham’s common stock traded at an average above $5.00 per share for 60 consecutive trading days and Brigham notified CSFB of its intent to force the exercise of the warrants. The warrants were exercised using shares of Series A Preferred Stock and Brigham received no additional proceeds from the exercise of the warrants.

F-18

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In March 2001, Brigham designated an additional 750,000 shares of preferred stock as Series A Preferred Stock and issued 500,000 shares of Series A Preferred Stock and 2,105,263 warrants to purchase Brigham’s common stock (Series A — Tranche 2 Warrants) to CSFB for net proceeds of $9.8 million.

      The Series A — Tranche 2 Warrants, which had terms similar to the Series A — Tranche 1 Warrants, had an exercise price of $4.75 per share, later reset to $4.35 in connection with the issuance of Series B Preferred Stock in December 2002, and a right that allowed Brigham to require the exercise of the warrants in the event that Brigham’s common stock traded at an average of at least 150% of the exercise price ($6.525 per share) for 60 consecutive trading days. The Series A — Tranche 2 Warrants were valued at approximately $4.5 million using the Black-Scholes Option Pricing model and were recorded as additional paid-in capital in March 2001. This discount accreted to the Series A Preferred Stock dividends during the life of the securities using the effective interest method.

      In November 2003, the price of Brigham’s common stock averaged at least $6.525 per share for 60 consecutive trading days and Brigham notified CSFB of its intent to force the exercise of the warrants. The warrants were exercised using shares of Series A Preferred Stock and Brigham received no additional proceeds from the exercise of the warrants.

      The remaining balance of Series A mandatorily redeemable preferred stock has a mandatory redemption date of October 31, 2010.

Series B Mandatorily Redeemable Preferred Stock

      The following table reflects the outstanding shares of Series B mandatorily redeemable preferred stock and the activity related thereto for the year ended December 31, 2003 (in thousands, except share amounts):

		Year Ended
		December 31, 2003
		Shares			Amounts
Series B mandatorily redeemable preferred stock:
	Balance, beginning of year		501,226		$	4,777
	Dividends paid in kind		30,603			612
	Accretion		—			32
			30,603			644
	Forced redemption of December 2002 issuance		(500,002	)		(4,784	)
	Final redemption of remaining shares		(31,827	)		(637	)
			(531,829	)		(5,421	)
	Balance, end of year		—		$	—

      In December 2002, Brigham designated 1,000,000 shares of preferred stock as Series B and issued 500,000 shares of Series B Preferred Stock and warrants to purchase 2,298,851 shares of Brigham’s common stock (Series B Warrants) to CSFB for net proceeds of $9.4 million. Brigham used $5 million of the net proceeds to reduce borrowings under the senior credit facility. The Series B Preferred Stock was cumulative and paid dividends quarterly at a rate of 6% per annum of the stated value if paid in cash or 8% per annum of the stated value if PIK through the issuance of additional Series B Preferred Stock in lieu of cash. At Brigham’s option, up to 100% of the dividend payments on the Series B Preferred Stock could be paid by the issuance of PIK dividends for five years. The Series B Preferred Stock would have matured in ten years and was redeemable in whole at Brigham’s option at 101% of the stated value five years after closing.

F-19

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Series B Preferred Stock ranked in parity with the Series A Preferred Stock and senior as to dividend, redemption and liquidation rights to all other classes and series of capital stock of Brigham authorized on the date of issuance, or to any other class or series of capital stock issued while any shares of the Series B Preferred Stock remain outstanding. The Series B Preferred Stock did not generally have any voting rights, except for certain approval rights and as required by law.

      The Series B Warrants had terms similar to the Series A Warrants described above with an exercise price of $4.35 per share and a right that allowed Brigham to require the exercise of the warrants in the event that Brigham’s common stock traded at an average of at least 150% of the exercise price ($6.525 per share) for 60 consecutive trading days. The Series B Warrants were valued at approximately $4.6 million using the Black-Scholes Option Pricing model and were recorded as additional paid-in capital in December 2002. This discount accreted to the Series B Preferred Stock dividends during the life of the securities using the effective interest method.

      In November 2003, the price of Brigham’s common stock averaged at least $6.525 per share for 60 consecutive trading days and Brigham notified CSFB of its intent to force the exercise of the warrants. The exercise price was paid in shares of Series B Preferred Stock and Brigham received no additional proceeds from the exercise of the warrants. Under the terms of the Series B Preferred Stock, Brigham was required to retire the remaining shares of Series B Preferred Stock plus accrued dividends upon the exercise of the warrants because the warrants were exercised using shares of Series B Preferred Stock.

6. Issuance of Common Stock

      During July and August 2004, Brigham completed the sale of 2,598,500 shares of its common stock under a universal shelf registration statement declared effective by the SEC in June 2004. Net proceeds from the stock sale of approximately $22.1 million were used to repay outstanding borrowings under the senior credit facility. Brigham plans to reborrow the repaid amounts under the senior credit facility as necessary to fund future exploration and development activities and for general corporate purposes.

      In December 2003, Brigham issued 2,105,263 shares of Brigham common stock pursuant to the exercise of the Series A — Tranche 2 warrants and 2,298,850 shares of Brigham common stock pursuant to the exercise of the Series B warrants to CSFB. See further discussion above in Note 5.

      In November 2003, Brigham issued 6,666,667 shares of Brigham common stock pursuant to the exercise of the Series A — Tranche 1 warrants to CSFB. See further discussion above in Note 5.

      In September 2003, Brigham issued 7,384,090 shares of Brigham common stock in a public offering and received proceeds of approximately $40 million, net of underwriting commissions and other offering expenses. The proceeds of the offering are being used to accelerate exploration and development activities and for general corporate purposes. Following the offering, proceeds were used to pay down the second amended and restated senior credit facility.

      In June 2003, Brigham issued 206,982 and 408,928 shares of Brigham common stock pursuant to the exercise under a cashless feature of 338,462 and 661,538 warrants, respectively.

      In February 2003, 487,805 warrants were exercised under a cashless feature resulting in the issuance of 248,028 shares of Brigham common stock.

7. Asset Retirement Obligations

      As referred to in Note 2, Brigham adopted the provisions of SFAS 143 on January 1, 2003. Brigham has asset retirement obligations associated with the future plugging and abandonment of proved properties and related facilities. Prior to the adoption of SFAS 143, Brigham assumed salvage value approximated

F-20

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

plugging and abandonment costs. As such, estimated salvage value was not excluded from depletion and plugging and abandonment costs were not accrued for over the life of the oil and gas properties.

      The adoption of SFAS 143 resulted in a January 1, 2003 cumulative effect adjustment to record (i) a $1.4 million increase in the carrying values of proved properties, (ii) a $0.8 million decrease in accumulated depletion of oil and natural gas properties and (iii) a $1.9 million increase in other noncurrent liabilities. The net impact of items (i) through (iii) was to record a gain of $0.3 million, net of taxes, as a cumulative effect adjustment of a change in accounting principle in Brigham’s consolidated statements of operations upon adoption on January 1, 2003.

      Brigham has no assets that are legally restricted for purposes of settling asset retirement obligations. The following table summarizes Brigham’s asset retirement obligation transactions recorded in accordance with the provisions of SFAS 143 during the years ended December 31, 2004 and 2003 (in thousands):

	Year Ended			Year Ended
	December 31, 2004			December 31, 2003
Beginning asset retirement obligations	$	2,320		$	1,931
Liabilities incurred for new wells placed on production		512			269
Liabilities settled		(95	)		(22	)
Accretion of discount on asset retirement obligations		159			142
	$	2,896		$	2,320

8.     Income Taxes

      The income tax expense (benefit) consists of the following (in thousands):

		Year Ended December 31,
		2004		2003			2002
				Restated
Current income taxes:
	Federal	$	—	$	—		$	—
	State		—		—			—
Deferred income taxes:
	Federal		10,863		(1,223	)		—
	State		—		—			—
		$	10,863	$	(1,223	)	$	—

F-21

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The differences in income taxes provided and the amounts determined by applying the federal statutory tax rate to income before income taxes result from the following (in thousands):

	Year Ended December 31,
	2004			2003			2002
				Restated			Restated
Tax at statutory rate	$	10,679		$	5,789		$	797
Add the effect of:
Nondeductible expenses		5			5			223
Deductible stock compensation		(194	)		(118	)		(110	)
Preferred stock dividends paid in kind		373			—			—
Valuation allowance		—			(7,554	)		(910	)
Unrealized hedging losses		—			561			—
Other		—			94			—
	$	10,863		$	(1,223	)	$	—

      The components of deferred income tax assets and liabilities are as follows (in thousands):

				December 31,
				2004		2003
						Restated
Deferred tax assets
	Current:
		Unrealized hedging losses		$	271	$	—
		Derivative assets			11		—
		Net operating loss carryforwards			—		451
			Current		282		451
	Non-current:
		Net operating loss carryforwards			36,743		34,409
		Capital loss carryforwards			634		634
		Stock compensation			816		818
		Unrealized hedging losses			—		561
		Derivative assets			—		276
		Asset retirement obligations			1,014		812
		Preferred stock dividends as interest expense			—		119
		Other			31		27
			Non-current		39,238		37,656
					39,520		38,107

F-22

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

				December 31,
				2004			2003
							Restated
Deferred tax liabilities
	Current:
		Derivative liabilities		$	(28	)		—
		Gas imbalances			(15	)		(144	)
			Current		(43	)		(144	)
	Non-current:
		Depreciable and depletable property			(47,635	)		(35,545	)
					(47,678	)		(35,689	)
		Net deferred tax asset (liability)			(8,158	)		2,418
		Valuation allowance			(634	)		(634	)
			Total deferred tax asset (liability)	$	(8,792	)	$	1,784
Reflected in the accompanying balance sheets as:
	Current deferred income tax asset			$	239		$	307
	Non-current deferred income tax asset				—			1,477
	Non-current deferred income tax liability				(9,031	)		—
				$	(8,792	)	$	1,784

      Realization of deferred tax assets associated with (i) net operating loss carryforwards (“NOLs”) and (ii) existing temporary differences between book and taxable income is dependent upon generating sufficient taxable income within the carryforward period available under tax law. Management believes that it is more likely than not that capital loss carryforwards of approximately $1.8 million may expire unused and, accordingly, has established a valuation allowance of $0.6 million. There was no change in the valuation allowance for the year ended December 31, 2004.

      At December 31, 2004, Brigham has regular tax NOLs of approximately $105 million. Additionally, Brigham has approximately $91.1 million of alternative minimum tax (“AMT”) NOLs available as a deduction against future taxable income. The NOLs expire from 2012 through 2024. The value of these NOLs depends on the ability of Brigham to generate taxable income. A summary of the NOLs follows (in thousands):

		Regular		AMT
		NOLs		NOLs
Expiration Date:
	December 31, 2012	$	13,299	$	8,675
	December 31, 2018		26,411		23,170
	December 31, 2019		20,717		20,107
	December 31, 2020		12,491		7,566
	December 31, 2021		19,095		18,419
	December 31, 2022		4,452		4,114
	December 31, 2023		4,623		4,693
	December 31, 2024		3,893		4,329
		$	104,981	$	91,073

F-23

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In addition, at December 31, 2004, Brigham has capital loss carryforwards of approximately $1.8 million that expire in varying years through 2007 in which Brigham has established a valuation allowance.

      Brigham believes an Internal Revenue Code Sec. 382 ownership change may have occurred in March 2001, as a result of a potential 50% change in ownership among its 5% shareholders over a three-year period. The minimum amount of the limitation approximates $5.2 million annually, which can be increased by recognized Built-in-Gains over five years following the ownership change. Management believes that the limitation will not have a material impact on the utilization of its NOL’s.

9.     Net Income (Loss) Per Share

      Basic earnings per share are computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. The computation of diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of Brigham.

			Year Ended December 31,
			2004		2003		2002
					Restated		Restated
			(In thousands,
			except per share amounts)
Basic EPS:
	Income (loss) available to common stockholders before cumulative change in accounting principle		$	19,650	$	14,314	$	(676	)
	Cumulative change in accounting principle			—		268		—
		Income (loss) available to common stockholders	$	19,650	$	14,582	$	(676	)
		Weighted average common shares outstanding		40,445		23,363		16,138
	Basic EPS:
	Income (loss) available to common stockholders before cumulative change in accounting principle		$	0.49	$	0.62	$	(0.04	)
	Cumulative change in accounting principle			—		0.01		—
		Income (loss) available to common stockholders	$	0.49	$	0.63	$	(0.04	)

F-24

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			Year Ended December 31,
			2004		2003		2002
					Restated		Restated
Diluted EPS:
	Income (loss) available to common stockholders before cumulative change in accounting principle		$	19,650	$	14,314	$	(676	)
	Cumulative change in accounting principle			—		268		—
		Income (loss) available to common stockholders		19,650		14,582		(676	)
	Adjustments for assumed conversions:
		Dividends and accretion on mandatorily redeemable preferred stock (1)		—		3,290		—
				19,650		3,290		—
	Income (loss) available to common stockholders before cumulative change in accounting principle — diluted			19,650		17,604		(676	)
	Cumulative change in accounting principle			—		268		—
		Income (loss) available to common stockholders—diluted	$	19,650	$	17,872	$	(676	)
	Common shares outstanding			40,445		23,363		16,138
	Effect of dilutive securities:
		Warrants		—		317		—
		Mandatorily redeemable preferred stock		—		9,971		—
		Stock options		1,171		703		—
	Potentially dilutive common shares			1,171		10,991		—
		Adjusted common shares outstanding — diluted		41,616		34,354		16,138
	Diluted EPS:
	Income (loss) available to common stockholders before cumulative change in accounting principle		$	0.47	$	0.51	$	(0.04	)
	Cumulative change in accounting principle			—		0.01		—
		Income (loss) available to common stockholders	$	0.47	$	0.52	$	(0.04	)

(1)  The amount of dividends included in dividends and accretion on mandatorily redeemable preferred stock includes only the dividends paid in kind on the $40 million of mandatorily redeemable preferred stock (2.0 million shares) that were issued with warrants whose exercise price is payable in either cash or in shares of mandatorily redeemable preferred stock.

      At December 31, 2004, 2003, and 2002, potential dilution of approximately 718,500, 1,000,000 and 14,300,000 shares of common stock, respectively, related to mandatorily redeemable preferred stock, convertible debt, warrants and options were outstanding, but were not included in the computation of diluted income (loss) per share because the effect of these instruments would have been anti-dilutive.

10.     Contingencies, Commitments and Factors Which May Affect Future Operations

     Litigation

      Brigham is, from time to time, party to certain lawsuits and claims arising in the ordinary course of business. While the outcome of lawsuits and claims cannot be predicted with certainty, management does

F-25

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

not expect these matters to have a materially adverse effect on the financial condition, results of operations or cash flows of Brigham.

      On November 20, 2001, Brigham filed a lawsuit in the District Court of Travis County, Texas, against Steve Massey Company, Inc. The Petition claimed Massey furnished defective casing to Brigham, which ultimately led to the casing failure of its Palmer 347 #5 well and the loss of the Palmer #5 as a producing well. In 2004, the parties settled the case on terms favorable to Brigham. Brigham received approximately $440,000 as a result of this settlement. The amount of the settlement reduced capitalized well cost. In addition, Massey agreed to drop its $445,819 counterclaim.

      On October 8, 2002, relatives of a contractor’s employee filed a wrongful death action against Brigham and three other contractors in the District Court of Matagorda County, Texas in connection with the employee’s death on Brigham’s Burkhart #1-R location. On March 23, 2004, a jury determined that Brigham had no liability in the accidental death of the contractor’s employee. The trial judge, however, granted plaintiffs’ motion for a new trial. Brigham expects the new trial to take place in June 2005. Brigham believes it has adequate insurance to cover any potential damage award (subject to a $5,000 deductible). At this point in time, Brigham cannot predict the outcome of this case.

      In September 2002, Brigham filed suit in the District Court of Matagorda County, Texas, against one of its contractors in connection with the drilling of the Burkhart #1-R well, claiming that contractor breached its contract with Brigham and negligently performed services on the well. Brigham believes the contractor’s actions damaged Brigham by approximately $650,000. The contractor counterclaimed, claiming it is entitled to recover approximately $315,000. In April 2004, the parties settled the case, resulting in a payment by the contractor to its co-participants and Brigham of $325,000. In addition, the contractor dropped its counterclaim. Based on the amount of the settlement, the additional costs that were covered by insurance, and the insurer being subrogated to Brigham’s claim, Brigham did not receive any incremental recovery as a result of the settlement.

      Prior to drilling, the operator of the Stonehocker #1 well disputed Brigham’s ownership in the well. In March 2003, a Motion to Determine Election was filed with the Oklahoma Corporation Commission. In January 2004, an Administrative Law Judge with the Oklahoma Corporation Commission ruled in Brigham’s favor. The operator of the Stonehocker #1 appealed the ruling and the Appellate Referee with the Oklahoma Corporation Commission affirmed the original ruling in March 2004. The full Commission Panel reviewed the reports of the Referee and the original Administrative Law Judge and affirmed those rulings. The operator then filed an appeal with the Oklahoma Supreme Court. In January 2005, the parties settled the dispute. The operator agreed to recognize Brigham’s full interest in the Stonehocker well, and also agreed to reverse certain charges made under the operating agreements of six additional wells in which Brigham owns an interest.

      A company that relinquished its ownership interest in the Nold #1S well as a result of a non-consent election in the re-completion of the well asserted that it did not relinquish its entire interest, but rather became subject only to a 400 percent payout provision. In November 2003, this company filed a lawsuit in the District Court of Brazoria County, Texas, against Brigham for breach of contract. If the suit was successful, it could have resulted in a judgment of as much as $700,000. In April 2004, Brigham settled the case, agreeing to pay the company $350,000 in return for the company’s assignment of all its right, title and interest in the unit for the well.

      In December 2003, Brigham filed a lawsuit in the United States District Court for the Western District of Texas against another company and a former employee concerning the defendants’ misappropriation of Brigham’s trade secrets and breach of confidentiality obligations. Defendants denied any wrongdoing and asserted a counterclaim against Brigham for alleged tortuous interference with an existing business relationship between the company and its employee. In April 2004, Brigham settled the

F-26

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

case. The company agreed not to compete against Brigham in a specified area for two years, assigned Brigham a small overriding royalty in three tracts, paid Brigham $50,000, and dropped its counterclaim.

      As of December 31, 2004, there are no known environmental or other regulatory matters related to Brigham’s operations that are reasonably expected to result in a material liability to Brigham. Compliance with environmental laws and regulations has not had, and is not expected to have, a material adverse effect on Brigham’s capital expenditures.

Operating Lease Commitments

      Brigham leases office equipment and space under operating leases expiring at various dates. The noncancelable term of the lease for Brigham’s office space expires in 2012. The future minimum annual rental payments under the noncancelable terms of these leases at December 31, 2004 are as follows (in thousands):

2005	$	692
2006		709
2007		698
2008		687
2009		704
Thereafter		1,836
	$	5,326

      Future minimum rental payments are not reduced by sublease rental income of approximately $69,000, and $44,000 due in 2005 and 2006, respectively, under noncancelable subleases.

      Rental expense for the years ended December 31, 2004, 2003 and 2002 was approximately $754,000, $851,000 and $868,000, respectively.

Major Purchasers

      The following purchasers accounted for 10% or more of Brigham’s oil and natural gas sales for the years ended December 31, 2004, 2003 and 2002:

	2004			2003			2002
Purchaser A		—			—			19	%
Purchaser B		11	%		—			—
Purchaser C		12	%		13	%		15	%
Purchaser D		—			3	%		11	%

      Brigham believes that the loss of any individual purchaser would not have a long-term material adverse impact on its financial position or results of operations.

Factors Which May Affect Future Operations

      Since Brigham’s major products are commodities, significant changes in the prices of oil and natural gas could have a significant impact on Brigham’s results of operations for any particular year.

11. Derivative Instruments and Hedging Activities

      Brigham utilizes various commodity swap and option contracts to (i) reduce the effects of volatility in price changes on the oil and natural gas commodities it produces and sells, (ii) reduce commodity price

F-27

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

risk and (iii) provide a base level of cash flow in order to assure it can execute at least a portion of its capital spending plans.

Natural Gas and Crude Oil Derivative Contracts

Cash-flow hedges

      Brigham’s cash-flow hedges consisted of fixed-price swaps and costless collars (purchased put options and written call options). The fixed-price swap agreements are used to fix the prices of anticipated future oil and natural gas production. The costless collars are used to establish floor and ceiling prices on anticipated future oil and natural gas production. There were no net premiums received when Brigham entered into these option agreements. As of December 31, 2004, Brigham had entered into derivative contracts that qualify as cash flow hedges with respect to future production as follows:

	2005
	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Natural gas collars:
Volumes (MMbtu)		727,500		635,000		180,000		60,000
Average price ($ per MMBtu)
Floor	$	5.164	$	4.931	$	5.450	$	5.450
Ceiling		7.256		7.077		8.000		8.000
Crude oil collars:
Volumes (Bbls)		27,450		18,655		—		—
Average price ($ per Bbl)
Floor	$	25.56	$	26.80	$	—	$	—
Ceiling		30.18		32.51		—		—

      The following table summarizes the hedging contracts to which Brigham entered subsequent to December 31, 2004, the total natural gas and crude oil production volumes subject to those contacts and the weighted average NYMEX reference price for those volumes:

	2005				2006
	Third		Fourth		First
	Quarter		Quarter		Quarter
Natural gas collars:
Volumes (MMbtu)		300,000		200,000		150,000
Average price ($ per MMBtu)
Floor	$	6.000	$	6.380	$	6.750
Ceiling		7.200		8.000		8.800
Crude oil collars:
Volumes (Bbls)		15,000		15,000		—
Average price ($ per Bbl)
Floor	$	40.00	$	40.00	$	—
Ceiling		53.00		53.00		—

F-28

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The fair value of derivative contracts is reflected on the balance sheet as detailed in the following schedule. The current asset and liability amounts represent the fair values expected to be included in the results of operations for the subsequent year.

		December 31,
		2004		2003
Other current liabilities		$	870	$	2,141
Other noncurrent liabilities			1		40
Other current assets			142		—
Other noncurrent assets			3		3
	Net fair value of derivative contracts	$	726	$	2,178

      Brigham reports average oil and natural gas prices and revenues including the net results of hedging activities. The following table sets forth Brigham’s oil and natural gas prices including and excluding the hedging gains and losses and the increase or decrease in oil and natural gas revenues as a result of the hedging activities for the three year period ended December 31, 2004:

		Year Ended December 31,
		2004		2003		2002
Natural gas
	Average price per Mcf as reported (including hedging results)	$	5.84	$	4.92	$	3.21
	Average price per Mcf realized (excluding hedging results)	$	6.05	$	5.68	$	3.33
	Decrease in revenue (in thousands)	$	1,853	$	4,807	$	712
Oil
	Average price per Bbl as reported (including hedging results)	$	35.17	$	28.17	$	23.55
	Average price per Bbl realized (excluding hedging results)	$	40.13	$	30.79	$	25.17
	Decrease in revenue (in thousands)	$	2,841	$	1,885	$	1,135

      Derivative instruments that do not qualify as hedging contracts are recorded at fair value on the balance sheet. At each balance sheet date, the value of these derivatives is adjusted to reflect current fair value and any gains or losses are recognized as other income or expense.

      As of December 31, 2004, Brigham’s derivative positions included an option contract that is not designated as a hedge. This contract was entered into to offset the cost of other options that are designated as hedges.

	2005
	First
	Quarter
Natural gas written puts:
Volumes (MMbtu)		210,000
Average price ($ per MMBtu)	$	5.500

F-29

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes option contracts not designated as hedges to which Brigham entered subsequent to December 31, 2004:

	2005				2006
	Third		Fourth		First
	Quarter		Quarter		Quarter
Natural gas written puts:
Volumes (MMbtu)		300,000		200,000		150,000
Average price ($ per MMBtu)	$	5.000	$	5.250	$	5.500
Crude oil written puts:
Volumes (MMbtu)		15,000		15,000		—
Average price ($ per MMBtu)	$	30.000	$	30.000	$	—

      The following table sets forth the recognized non-cash gains (losses) related to changes in the fair values of derivative instruments that do not qualify as hedging contracts and gains (losses) related to the cash settlement payments made by Brigham to the counterparty for the three year period ended December 31, 2004:

	Year Ended December 31,
	2004			2003		2002
Non-cash gains (losses)	$	(33	)	$	—	$	384
Losses from cash settlements	$	—		$	—	$	(559	)

      For the years ended December 31, 2004, 2003 and 2002, ineffectiveness associated with Brigham’s derivative commodity instruments designated as cash flow hedges increased (decreased) earnings by approximately $0.7 million, $(0.7) million and $(0.1) million, respectively. These amounts are included in other income and expense.

Interest rate swap

      Periodically, Brigham may use interest rate swap contracts to adjust the proportion of its total debt that is subject to variable interest rates. Under such an interest rate swap contract, Brigham agrees to pay an amount equal to a specified fixed-rate of interest for a certain notional amount and receive in return an amount equal to a variable-rate. The notional amounts of the contract are not exchanged. No other cash payments are made unless the contract is terminated prior to maturity. Although no collateral is held or exchanged for the contract, the interest rate swap contract is entered into with a major financial institution in order to minimize Brigham’s counterparty credit risk. The interest rate swap contract is designated as cash flow hedges against changes in the amount of future cash flows associated with Brigham’s interest payments on variable-rate debt. The effect of this accounting on operating results is that interest expense on a portion of variable-rate debt being hedged is recorded based on fixed interest rates.

      At December 31, 2004, Brigham had an interest rate swap contract to pay a fixed-rate of interest of 7.61% on $20.0 million notional amount of senior subordinated notes. The $20.0 million notional amount of the outstanding contract matures in March 2009. As of December 31, 2004, approximately $1,000 of unrealized losses are included in accumulated other comprehensive income (loss) on the balance sheet which represents the fair values of the interest rate swap agreement as of that date. The fair value of the interest rate swap contract is based on quoted market prices and third-party provided calculations, which reflect the present values of the difference between estimated future variable-rate receipts and future fixed-rate payments.

F-30

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. Financial Instruments

      Brigham’s non-derivative financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of their immediate or short-term maturities. The carrying value of Brigham’s senior credit facility approximates its fair market value since it bears interest at floating market interest rates. The fair value of Brigham’s senior subordinated notes at December 31, 2004 and 2003 was $20 million and $20.1 million, respectively. The carrying value of the Series A mandatorily redeemable preferred stock approximates its fair market value because this is the amount that Brigham would be required to pay to extinguish the preferred stock.

      Brigham’s accounts receivable relate to oil and natural gas sold to various industry companies, and amounts due from industry participants for expenditures made by Brigham on their behalf. Credit terms, typical of industry standards, are of a short-term nature and Brigham does not require collateral. Brigham’s accounts receivable at December 31, 2004 and 2003 do not represent significant credit risks as they are dispersed across many counterparties. Counterparties to the natural gas and crude oil price swaps are investment grade financial institutions.

13. Employee Benefit Plans

      Brigham has adopted a defined contribution 401(k) plan for substantially all of its employees. The plan provides for Brigham matching of employee contributions to the plan, at Brigham’s discretion. During 2004, 2003 and 2002, Brigham provided a base match equal to 25% of eligible employee contributions. Based on attainment of performance goals established at the beginning of each fiscal year, Brigham matched an additional 25.25%, 47% and 62.5% of eligible employee contributions made during 2004, 2003 and 2002, respectively. Brigham contributed approximately $204,000, $250,000 and $236,000 to the 401(k) plan for the years ended December 31, 2004, 2003 and 2002, respectively, to match eligible contributions by employees.

14. Stock Based Compensation

      Brigham provides an incentive plan for the issuance of stock options, stock appreciation rights, stock, restricted stock, cash or any combination of the foregoing. The objective of this plan is to provide incentive and reward key employees whose performance may have a significant impact on the success of Brigham. As amended by stockholder resolution in May 2003, the number of shares available under the plan is equal to the lesser of 4,387,500 or 15% of the total number of shares of common stock outstanding. The Compensation Committee of the Board of Directors determines the type of awards made to each participant and the terms, conditions and limitations applicable to each award. At December 31, 2002, Brigham had issued approximately 85,000 incentive awards in excess of the amount then currently authorized by the plan. Brigham stockholders approved an increase in the total shares available for incentive awards as noted above in May 2003. As a result, the grant date for the 85,000 options is considered May 2003 for accounting purposes. The exercise price for these options was originally set at the market value of Brigham’s common stock, however as of May 2003, it was less than the fair market value of Brigham’s common stock at that date. Accordingly, Brigham recognized approximately $156,000 of unearned stock compensation and is amortizing this amount to compensation expense over the vesting period of the options. With the exception of these 85,000 options, options granted subsequent to March 4, 1997 have an exercise price equal to the fair market value of Brigham’s common stock on the date of grant and generally vest over three to five years.

      In May 2002, Brigham accelerated the vesting of a certain departing employee’s stock options and extended the time limitation for exercising that employee’s stock options following termination of employment. These revisions resulted in the immediate recognition of stock compensation cost as

F-31

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

measured at the effective date of the changes. Accordingly, a non-cash charge to general and administrative expense in the amount of $596,000 was recorded.

      Brigham also maintains a director stock option plan under which stock options are awarded to non-employee directors. In May 2003, the plan was amended by stockholder resolution to increase the number of shares available for issuance to 430,000 shares of common stock. Options granted under this plan have an exercise price equal to the fair market value of Brigham common stock on the date of grant and generally vest over five years.

      The following table summarizes option activity under the incentive plans for each of the three years ended December 31, 2004:

		2004						2003						2002
					Weighted-						Weighted-						Weighted-
					Average						Average						Average
					Exercise						Exercise						Exercise
		Shares			Price			Shares			Price			Shares			Price
Options outstanding at beginning of year			2,582,675		$	4.78			1,788,135		$	3.00			1,616,771		$	3.00
	Granted		790,000			8.75			1,127,500			6.46			481,000			4.12
	Forfeited or cancelled		(80,894	)		(4.72	)		(23,200	)		(3.49	)		(177,129	)		(3.25	)
	Exercised		(314,181	)		(3.06	)		(309,760	)		(2.68	)		(132,507	)		(2.23	)
Options outstanding at end of year			2,977,600		$	6.01			2,582,675		$	4.78			1,788,135		$	3.00
Options exercisable at end of year			792,557		$	4.30			656,633		$	3.14			658,126		$	2.79

      Brigham is required to use variable accounting for 252,500 of the stock options granted during 2000 of which 118,000 remain outstanding at December 31, 2004. This method of accounting requires recognition of noncash compensation expense for the difference between the option exercise price and the market price of Brigham’s stock at the end of the accounting period of vested options.

      The following table summarizes information about stock options outstanding at December 31, 2004:

	Options Outstanding						Options Exercisable
	Number		Weighted-				Number
	Outstanding at		Average		Weighted-		Exercisable at		Weighted-
	December 31,		Remaining		Average		December 31,		Average
Exercise Price	2004		Contractual Life		Exercise Price		2004		Exercise Price
$1.55 to $1.83		119,000		1.1 years	$	1.83		81,000	$	1.83
2.38 to 3.41		400,100		3.8 years		3.27		189,491		3.18
3.61 to 5.19		691,000		4.1 years		4.12		320,733		4.05
6.31 to 6.73		935,000		5.7 years		6.68		189,333		6.67
7.88 to 14.38		832,500		6.7 years		8.75		12,000		7.97
$1.55 to $14.38		2,977,600		5.2 years	$	6.01		792,557	$	4.30

Restricted Stock

      During the years ended December 31, 2004 and 2003, Brigham issued 70,000 and 350,000, respectively, restricted shares of common stock as compensation to officers and key employees of Brigham. The restricted shares vest over five years. Brigham recognized approximately $0.5 million and $1.8 million

F-32

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of unearned stock compensation and will amortize this amount to compensation expense over the vesting period of the restricted stock.

      The following table reflects the outstanding restricted stock awards and activity related thereto for the years ended December 31:

			Year Ended						Year Ended
			December 31, 2004						December 31, 2003
						Weighted-					Weighted-
			Number of			Average			Number of		Average
			Shares			Price			Shares		Price
Restricted Stock Awards:
	Restricted shares outstanding at the beginning of the year			350,000		$	5.23			—	$	—
	Shares granted			70,000			7.35			350,000		5.23
	Lapse of restrictions			(72,083	)		(5.23	)		—		—
	Forfeitures			(22,917	)		(5.69	)		—		—
		Restricted shares outstanding at the end of the year		325,000		$	5.65			350,000	$	5.23

15. Related Party Transactions

      During the years ended December 31, 2004, 2003, and 2002, Brigham incurred costs of approximately $2.9 million, $2.0 million and $1.1 million, respectively, in fees for land acquisition services performed by a company owned by a brother of Brigham’s Chairman, President and Chief Executive Officer and its Executive Vice President — Land and Administration. Other participants in Brigham’s 3-D seismic projects reimbursed Brigham for a portion of these amounts. At December 31, 2004 and 2003, Brigham had recorded a liability in accounts payable of approximately $236,000 and $262,000, respectively, related to services performed by this company.

      Mr. Harold Carter, a director of Brigham, served as a consultant to Brigham on various aspects of its business and strategic issues. Fees paid for these services by Brigham were approximately $30,000, $30,000, and $45,000 for the years ended December 31, 2004, 2003, and 2002, respectively. Additional disbursements totaling approximately $12,000 were made during each of the years ended December 31, 2004, 2003, and 2002, for the reimbursement of certain expenses. At December 31, 2004 and 2003, there were no payables related to these services recorded by Brigham.

      At December 31, 2004 and 2003 Brigham had short-term accounts receivable from Mr. Steven Webster, a director of Brigham, of approximately $2,200 and $8,300, respectively. These receivables represent the director’s share of costs related to his working interest ownership in the Staubach #1, Burkhart #1R and Matthes-Huebner #1 wells that are operated by Brigham. Mr. Webster obtained his interest in these wells through an exploration and production company that is not affiliated with Brigham.

      On March 1, 2002, Brigham ended an agreement to sell substantially all of its crude production to a single company, and began utilizing a broader range of purchasers. In April 2002, Brigham began selling a portion of its oil production to Citation Crude Marketing, Inc. based on an evaluation of terms and capabilities offered by several companies. Brigham’s Executive Vice President and Chief Financial Officer and board member through July 12, 2002 is the brother of the President of Citation Crude Marketing, Inc., and the son of the President and Chief Executive Officer of Citation Oil & Gas Corporation. Brigham sold Citation Crude Marketing, Inc. approximately 49,000 barrels of oil with a value of $1.6 million during 2003 and 212,000 barrels of oil with a value of $5.6 million to during 2002. During 2004, Brigham did not sell any oil or natural gas to Citation Crude Marketing, Inc.

F-33

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      From time to time, in the normal course of business, Brigham has engaged a drilling company in which Mr. Steven Webster, one of Brigham’s current directors, owns stock and serves on the board of directors. Total payments to the drilling company during 2004, 2003 and 2002 were $3.5 million, $1.2 million and $0.4 million, respectively. Brigham owed the drilling company approximately $0.7 million and $0.3 million at December 31, 2004 and 2003, respectively.

      From time to time, in the normal course of business, Brigham has engaged a service company in which Mr. Hobart Smith, one of Brigham’s current directors, owns stock and serves as a consultant. Total payments to the service company during 2004, 2003 and 2002 were $1 million, $478,000 and $130,000, respectively. At December 31, 2004 and 2003, Brigham owed the service company approximately $132,000 and $237,000, respectively.

      In October 2001, Brigham entered into a Joint Exploration Agreement with Carrizo Oil & Gas, Inc. (“Carrizo”). Under the terms of this agreement the parties: (1) blended their existing oil and gas leasehold positions covering a South Texas prospect; (2) identified five separate areas of mutual interest within the prospect; and (3) agreed upon procedures for the future exploration and development of the prospect. In November and December of 2002, Brigham and Carrizo entered into agreements that increased Brigham’s interest in some of the leasehold within the South Texas prospect. Mr. Steven Webster, one of Brigham’s current directors, was a co-founder of Carrizo and is currently chairman of Carrizo’s board of directors. At December 31, 2004 and 2003, Brigham was owed $114,000 and $206,000, respectively, by Carrizo for exploration and production activities. Brigham owed Carrizo $0 and $50,000 at December 31, 2004 and 2003, respectively.

      During 2001, Brigham entered into three agreements with Aspect Resources, LLC (“Aspect”). These agreements included: (1) a Joint Development Agreement extending the term of an area of mutual interest arrangement, and establishing cost sharing for potential expenditures within the project area; (2) an Agreement and Partial Assignment of Seismic Participation Agreement under which Aspect assigned Brigham an interest in an existing 3-D seismic project and Brigham must pay the assigned interest portion of future costs; and (3) a Geophysical Exploration Agreement under which Brigham assigned Aspect an interest in an existing 3-D project area (with certain exclusion) and Aspect agreed to provide certain seismic data overlapping the project area and share in future costs. The President of Aspect was a director of Brigham and a member of the Compensation Committee for a portion of 2002 and all of 2001. There were no amounts paid to Aspect during 2004 and 2003. Total amounts paid to Aspect during 2002 for exploration, development and production operations were $189,000. Total amounts paid to Brigham by Aspect, or on their behalf, during 2004, 2003 and 2002 for exploration, development and production operations were $191,000, $91,000 and $1,008,000, respectively. There were no amounts owed by Brigham to Aspect at December 31, 2004 or 2003. Aspect owed Brigham $136,000 and $69,000 at December 31, 2004 and 2003, respectively, for various oil and gas exploration and production activities.

F-34

BRIGHAM EXPLORATION COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16. Supplemental Cash Flow Information

		Year Ended December 31,
		2004		2003		2002
Cash paid for interest		$	1,634	$	2,447	$	3,974
Noncash investing and financing activities:
	Dividends and accretion on mandatorily redeemable preferred stock		726		3,448		2,952
	Capitalized asset retirement obligations		512		1,630		—
	Conversion of senior credit facility to common stock		—		—		10,000
	Conversion of preferred stock to common stock via exercise of warrants		—		18,534		—
	Issuance of restricted stock		514		1,831		—
	Forfeitures of restricted stock		131		—		—
	Issuance of stock options		—		296		—

17. Other Assets and Liabilities

      Other current assets consist of the following (in thousands):

	December 31,
	2004		2003
Gas imbalance receivables	$	—	$	2,477
Other		901		1,129
	$	901	$	3,606

      Other current liabilities consist of the following (in thousands):

	December 31
	2004		2003
Derivative liabilities	$	870	$	2,141
Gas imbalance liabilities		—		2,064
Other		1,355		1,193
	$	2,225	$	5,398

      Gas imbalance receivables and liabilities were settled with the counterparty during 2004.

F-35

BRIGHAM EXPLORATION COMPANY

SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

Oil and Natural Gas Exploration and Production Activities

      Oil and natural gas sales reflect the market prices of net production sold or transferred with appropriate adjustments for royalties, net profits interest and other contractual provisions. Lease operating expenses include lifting costs incurred to operate and maintain productive wells and related equipment including such costs as operating labor, repairs and maintenance, materials, supplies and fuel consumed. Production taxes include production and severance taxes. Depletion of oil and natural gas properties relates to capitalized costs incurred in acquisition, exploration and development activities. Results of operations do not include interest expense and general corporate amounts.

Costs Incurred and Capitalized Costs

      The costs incurred in oil and natural gas acquisition, exploration and development activities follow (in thousands):

		December 31,
		2004		2003		2002
Costs incurred for the year:
	Exploration (including geological and geophysical costs)	$	30,189	$	20,126	$	12,693
	Property acquisition		6,226		4,850		2,510
	Development		50,497		22,285		13,301
	Asset retirement obligations		513		269		—
		$	87,425	$	47,530	$	28,504

      Following is a summary of capitalized costs (in thousands) excluded from depletion at December 31, 2004 by year incurred. Excluded costs for prospects are accumulated by year. When circumstances dictate that less than the entire prospect should be removed from excluded costs, Brigham uses a proportionate method that removes amounts from each year, as opposed to a first-in-first-out method. Costs are reflected in the full cost pool as the drilling program is executed or as costs are evaluated and deemed impaired. At this time, Brigham is unable to predict either the timing of the inclusion of these costs and the related natural gas and oil reserves in its depletion computation or their potential future impact on depletion rates.

		December 31,
								Prior
		2004		2003		2002		Years		Total
Property acquisition		$	2,583	$	1,525	$	643	$	10,879	$	15,630
Exploration (including geological and geophysical costs)			8,339		2,268		856		14,905		26,368
Drilling			3,100		—		—		—		3,100
Capitalized interest			250		163		72		1,773		2,258
	Total	$	14,272	$	3,956	$	1,571	$	27,557	$	47,356

Oil and Natural Gas Reserves and Related Financial Data

      Information with respect to Brigham’s oil and natural gas producing activities is presented in the following tables. Reserve quantities, as well as certain information regarding future production and discounted cash flows, were determined by Brigham’s independent petroleum consultants and internal petroleum reservoir engineers.

Oil and Natural Gas Reserve Data

      The following tables present Brigham’s estimates of its proved oil and natural gas reserves. Brigham emphasizes reserves are approximates and are expected to change as additional information becomes available. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a

F-36

BRIGHAM EXPLORATION COMPANY

SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) — (Continued)

function of the quality of available data and of engineering and geological interpretation and judgment. A substantial portion of the reserve balances was estimated utilizing the volumetric method, as opposed to the production performance method.

		Natural
		Gas			Oil
		(MMcf)			(MBbls)
Proved reserves at December 31, 2001			88,594			3,748
	Revisions of previous estimates		(824	)		(31	)
	Extensions, discoveries and other additions		18,005			599
	Sales of minerals-in-place		(556	)		(8	)
	Production		(5,791	)		(701	)
Proved reserves at December 31, 2002			99,428			3,607
	Revisions of previous estimates		(6,148	)		176
	Extensions, discoveries and other additions		22,479			1,067
	Production		(6,356	)		(720	)
Proved reserves at December 31, 2003			109,403			4,130
	Revisions of previous estimates		(11,142	)		(642	)
	Extensions, discoveries and other additions		12,444			321
	Production		(8,830	)		(573	)
Proved reserves at December 31, 2004			101,875			3,236
Proved developed reserves at December 31:
	2001		38,633			2,609
	2002		42,161			2,330
	2003		49,920			2,863
	2004		47,494			2,124

      Proved reserves are estimated quantities of natural gas and crude oil, which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.

Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein

      The following table presents a standardized measure of discounted future net cash inflows (in thousands) relating to proved oil and natural gas reserves. Future cash flows were computed by applying year-end prices of oil and natural gas relating to Brigham’s proved reserves to the estimated year-end quantities of those reserves. Future price changes were considered only to the extent provided by contractual agreements in existence at year-end. Future production and development costs were computed by estimating those expenditures expected to occur in developing and producing the proved oil and natural gas reserves at the end of the year, based on year-end costs. Actual future cash inflows may vary considerably, and the standardized measure does not necessarily represent the fair value of Brigham’s oil and natural gas reserves. The effects of hedging activities are insignificant to the standardized measure of discounted future net cash flows.

F-37

BRIGHAM EXPLORATION COMPANY

SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) — (Continued)

	December 31,
	2004			2003			2002
Future cash inflows	$	766,344		$	737,544		$	601,081
Future production costs		(159,697	)		(123,176	)		(82,689	)
Future development costs		(79,868	)		(58,978	)		(48,668	)
Future income tax expense		(116,254	)		(138,118	)		(104,724	)
Future net cash inflows		410,525			417,272			365,000
10% annual discount for estimated timing of cash flows		(170,816	)		(155,674	)		(125,302	)
Standardized measure of discounted future net cash flows	$	239,709		$	261,598		$	239,698

      The base sales prices for Brigham’s reserve estimates were as follows:

	Natural
	Gas		Oil
	(MMbtu)		(Bbl)
December 31, 2004	$	6.19	$	43.46
December 31, 2003		5.83		32.55
December 31, 2002		4.74		31.25

      These base prices were adjusted to reflect applicable transportation and quality differentials on a well-by-well basis to arrive at realized sales prices used to estimate Brigham’s reserves at these dates.

      Changes in the future net cash inflows discounted at 10% per annum follow (in thousands):

		December 31,
		2004			2003			2002
Beginning of period		$	261,598		$	239,698		$	120,924
	Sales of oil and natural gas produced, net of production costs		(67,992	)		(51,126	)		(31,475	)
	Previously estimated development costs incurred during the period		37,109			14,370			8,625
	Extensions and discoveries		27,089			91,383			60,872
	Sales of minerals-in-place		—			—			(1,064	)
	Net change of prices and production costs		38,501			20,822			136,808
	Change in future development costs		(40,086	)		(11,281	)		(8,000	)
	Changes in production rates (timing)		(33,270	)		(40,103	)		(19,539	)
	Revisions of previous quantity estimates		(47,324	)		(15,063	)		(2,876	)
	Accretion of discount		34,381			30,737			14,681
	Change in income taxes		27,452			(14,537	)		(41,794	)
	Other		2,251			(3,302	)		2,536
End of period		$	239,709		$	261,598		$	239,698

F-38

BRIGHAM EXPLORATION COMPANY

SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION

Quarterly Financial Data (Unaudited)

		Year Ended December 31, 2004
		Quarter		Quarter		Quarter		Quarter
		1		2		3		4
		Restated		Restated		Restated
Revenue		$	16,820	$	17,957	$	17,267	$	20,184
Operating income			7,986		8,809		7,561		8,475
Net income			4,925		5,138		4,491		5,096
Net income per share:
	Basic	$	0.13	$	0.13	$	0.11	$	0.12
	Diluted	$	0.12	$	0.13	$	0.11	$	0.12

			Year Ended December 31, 2003
			Quarter		Quarter		Quarter		Quarter
			1		2		3		4
			Restated		Restated		Restated		Restated
Revenue			$	14,677	$	12,170	$	13,213	$	11,617
Operating income				7,274		4,607		5,307		4,722
Net income:
	Income available to common stockholders before cumulative effect of change in accounting principle			5,129		2,081		3,060		4,044
	Cumulative effect of change in accounting principle			268		—		—		—
	Net income available to common stockholders		$	5,397	$	2,081	$	3,060	$	4,044
Net income per share:
	Basic:
		Income available to common stockholders before cumulative effect of change in accounting principle	$	0.26	$	0.12	$	0.14	$	0.13
		Cumulative effect of change in accounting principle		0.01		—		—		—
		Net income available to common stockholders	$	0.27	$	0.12	$	0.14	$	0.13
	Diluted:
		Income available to common stockholders before cumulative effect of change in accounting principle	$	0.19	$	0.09	$	0.12	$	0.12
		Cumulative effect of change in accounting principle		0.01		—		—		—
		Net income available to common stockholders	$	0.20	$	0.09	$	0.12	$	0.12

F-39

BRIGHAM EXPLORATION COMPANY

SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION — (Continued)

      The information in the quarterly data below represents only those consolidated statements of operations line items affected by the restatement.

			Year Ended December 31, 2004
			Quarter 1						Quarter 2						Quarter 3
			As Reported			Restated			As Reported			Restated			As Reported			Restated
			(Unaudited)
Consolidated Statements of Operations:
	Depletion of oil and natural gas properties		$	4,880		$	5,124		$	5,623		$	5,524		$	5,871		$	5,860
	Deferred income tax benefit (expense)			(2,500	)		(2,420	)		(2,683	)		(2,714	)		(2,051	)		(2,056	)
	Net income (loss) available to common stockholders			5,089			4,925			5,070			5,138			4,485			4,491
	Net income (loss) per share available to common stockholders:
		Basic	$	0.13		$	0.13		$	0.13		$	0.13		$	0.11		$	0.11
		Diluted	$	0.13		$	0.12		$	0.13		$	0.13		$	0.11		$	0.11

		Year Ended December 31, 2003
		Quarter 1				Quarter 2				Quarter 3				Quarter 4
		As reported		Restated		As reported		Restated		As reported		Restated		As reported		Restated
		(Unaudited)
Consolidated Statements of Operations:
	Depletion of oil and natural gas properties	$	4,102	$	4,221	$	3,799	$	4,103	$	3,952	$	4,235	$	5,119	$	4,260
	Deferred income tax benefit (expense)		—		—		—		—		—		—		1,636		1,223
	Net income (loss) available to common stockholders		5,516		5,397		2,385		2,081		3,343		3,060		3,598		4,044
Net income (loss) per share available to common stockholders:
	Basic	$	0.28	$	0.27	$	0.12	$	0.12	$	0.16	$	0.14	$	0.11	$	0.13
	Diluted	$	0.20	$	0.20	$	0.10	$	0.09	$	0.13	$	0.12	$	0.10	$	0.12

F-40

INDEX TO EXHIBITS

Number			Description
	3.1	—	Certificate of Incorporation (filed as Exhibit 3.1 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	3.2	—	Certificates of Amendment to Certificate of Incorporation (filed as Exhibit 3.1.1 to Brigham’s Registration Statement on Form S-3 (Registration No. 333-37558), and incorporated herein by reference).
	3.3	—	Bylaws (filed as Exhibit 3.2 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	4.1	—	Form of Common Stock Certificate (filed as Exhibit 4.1 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	4.2	—	Certificate of Designations of Series A Preferred Stock (Par Value $.01 Per Share) of Brigham Exploration Company filed October 31, 2000 (filed as Exhibit 4.1 to Brigham’s Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference).
	4.3	—	Certificate of Amendment of Certificate of Designations of Series A Preferred Stock (Par Value $.01 Per Share) of Brigham Exploration Company, filed March 2, 2001 (filed as Exhibit 4.2.1 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2000 (filed March 23, 2001), and incorporated herein by reference).
	4.4	—	Certificate of Designations of Series B Preferred Stock (Par Value $.01 Per Share) of Brigham Exploration Company filed December 20, 2002 (filed as Exhibit 4.4 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2002 (filed March 31, 2003) and incorporated herein by reference).
	4.5	—	Certificate of Elimination of Certificate of Designations of Series B Preferred Stock of Brigham Exploration Company, dated June 4, 2004, (filed as Exhibit 99.2 to Brigham’s Current Report on Form 8-K (filed July 20, 2004), and incorporated herein by reference).
	10.1	—	Amended and Restated Agreement of Limited Partnership of Brigham Oil & Gas, L.P., dated December 30, 1997 by and among Brigham, Inc., Brigham Holdings I, L.L.C. and Brigham Holdings II, L.L.C. (filed as Exhibit 10.1.4 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference)
	10.2*	—	Consulting Agreement dated May 1, 1997, by and between Brigham Oil & Gas, L.P. and Harold D. Carter (filed as Exhibit 10.4 to Brigham’s Registration Statement on Form S-1 (Registration No. 33-53873), and incorporated herein by reference).
	10.3*	—	Letter agreement, dated as of March 20, 2000, setting forth amendments effective January 1, 2000, to the Consulting Agreement, dated May 1, 1997, by and between Brigham Oil & Gas, L.P. and Harold D. Carter (filed as Exhibit 10.5.1 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).
	10.4*	—	Letter agreement, setting forth amendments to the Consulting Agreement, dated May 1, 1997, by and between Brigham Oil & Gas, L.P. and Harold D. Carter. (filed as Exhibit 10.4 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference
	10.5*	—	Employment Agreement, by and between Brigham Exploration Company and Ben M. Brigham (filed as Exhibit 10.7 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	10.6*	—	1997 Incentive Plan of Brigham Exploration Company as amended through April 9, 2003 (filed as Appendix B to Brigham’s Definitive Proxy Statement on Schedule 14-A on May 7, 2003 and incorporated herein by reference).
	10.7*	—	Form of Option Agreement for certain executive officers (filed as Exhibit 10.9.1 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	10.8*	—	Form of Restricted Stock Agreement for certain executive officers dated as of October 27, 2000 (filed as Exhibit 10.8.2 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2000 (filed March 23, 2001), and incorporated herein by reference).

Number			Description
	10.9	—	Two Bridgepoint Lease Agreement dated September 30, 1996, by and between Investors Life Insurance Company of North America and Brigham Oil & Gas, L.P. (filed as Exhibit 10.14 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	10.10	—	First Amendment to Two Bridge Point Lease Agreement dated April 11, 1997 between Investors Life Insurance Company of North America and Brigham Oil & Gas, L.P. (filed as Exhibit 10.9.1 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-53873), and incorporated herein by reference).
	10.11	—	Second Amendment to Two Bridge Point Lease Agreement dated October 13, 1997 between Investors Life Insurance Company of North America and Brigham Oil & Gas, L.P. (filed as Exhibit 10.9.2 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-53873), and incorporated herein by reference).
	10.12	—	Letter dated April 17, 1998 exercising Right of First Refusal to Lease “3rd Option Space” (filed as Exhibit 10.9.3 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-53873), and incorporated herein by reference).
	10.13†	—	Third Amendment to Two Bridge Point Lease Agreement dated November 1998 between Hub Properties Trust and Brigham Oil & Gas, L.P.
	10.14†	—	Fourth Amendment to Two Bridge Point Lease Agreement dated February 7, 2002 between Hub Properties Trust and Brigham Oil & Gas, L.P.
	10.15†	—	Fifth Amendment to Two Bridge Point Lease Agreement dated December 20, 2004 between Hub Properties Trust, a Maryland real estate investment trust, and Brigham Oil & Gas, L.P.
	10.16	—	Form of Indemnity Agreement between the Registrant and each of its executive officers (filed as Exhibit 10.28 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	10.17	—	Registration Rights Agreement dated February 26, 1997 by and among Brigham Exploration Company, General Atlantic Partners III L.P., GAP-Brigham Partners, L.P., RIMCO Partners, L.P. II, RIMCO Partners L.P. III, and RIMCO Partners, L.P. IV, Ben M. Brigham, Anne L. Brigham, Harold D. Carter, Craig M. Fleming, David T. Brigham and Jon L. Glass (filed as Exhibit 10.29 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	10.18*	—	1997 Director Stock Option Plan, as amended as of April 9, 2003. (filed as Exhibit 10.15 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference
	10.19	—	Form of Employee Stock Ownership Agreement (filed as Exhibit 10.31 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	10.20	—	Agreement and Assignment of Interest in Geophysical Exploration Agreement, Esperson Dome Project, dated November 1, 1994, by and between Brigham Oil & Gas, L.P. and Vaquero Gas Company (filed as Exhibit 10.33 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	10.21	—	Agreement and Partial Termination of Agreement and Assignment of Interest in Geophysical Exploration Agreement, Esperson Dome Project dated March 14, 2003, by and between Brigham Oil & Gas, L.P. and Vaquero Gas Company, Incorporated (filed as Exhibit 10.53 to Brigham’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference)
	10.22	—	Proposed Trade Structure, RIMCO/ Tigre Project, Vermillion Parish, Louisiana, among Brigham Oil & Gas, L.P., Tigre Energy Corporation and Resource Investors Management Company (filed as Exhibit 10.36 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).
	10.23	—	Letter relating to Proposed Trade Structure, RIMCO/ Tigre Project, dated January 31, 1997, from Resource Investors Management Company to Brigham Oil & Gas, L.P. (filed as Exhibit 10.36.1 to Brigham’s Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference).

Number			Description
	10.24	—	Agreement dated March 6, 2000 by and between RIMCO Production Co., Tigre Energy Corporation and Brigham Oil & Gas, L.P. regarding modifications to the Proposed Trade Structure, RIMCO/ Tigre Project, dated January 31, 1997 (filed as Exhibit 10.31.2 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated by reference herein).
	10.25	—	Form Change of Control Agreement dated as of September 20, 1999 between Brigham Exploration Company and certain Officers (filed as Exhibit 10.3 to Brigham’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999 and incorporated by reference herein).
	10.26	—	Joint Development Agreement, dated as of February 10, 1999, by and between Brigham Oil & Gas, L.P. and Aspect Resources LLC. (filed as Exhibit 10.65 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).
	10.27	—	First Amendment, dated as of May 10, 1999, to that certain Joint Development Agreement entered into effective as of February 10, 1999, by and between Brigham Oil & Gas, L.P. and Aspect Resources LLC. (filed as Exhibit 10.65.1 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).
	10.28	—	Acquisition and Participation Agreement dated October 21, 1999, by and between Brigham Oil & Gas, L.P. and Aspect Resources LLC. (filed as Exhibit 10.65.2 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).
	10.29	—	Letter agreement, dated as of December 30, 1999, regarding amendments to Joint Development Agreement, dated as of February 10, 1999, as amended, by and between Brigham Oil & Gas, L.P. and Aspect Resources LLC. (filed as Exhibit 10.65.3 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).
	10.30	—	Letter agreement dated as of September 6, 1999 between Brigham Oil & Gas, L.P. and Brigham Land Management Company, Inc. regarding work to be performed within Brigham’s Angelton Project. (filed as Exhibit 10.66 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).
	10.31	—	Registration Rights Agreement dated November 1, 2000 by and between Brigham Exploration Company, DLJ MB Funding III, Inc., and DLJ ESC II, LP. (filed as Exhibit 10.10 to Brigham’s Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference).
	10.32	—	First Amendment to Registration Rights Agreement, dated March 5, 2001, by and among Brigham Exploration Company, DLJMB Funding III, Inc., DLJ Merchant Banking Partners III, LP, DLJ ESC II, LP and DLJ Offshore Partners III, CV (filed as Exhibit 10.71 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2000 (filed March 23, 2001), and incorporated herein by reference).
	10.33	—	Exchange Agreement, dated November 21, 2002 between Brigham Exploration Company, Brigham Oil & Gas, L.P. and Shell Capital Inc. (filed as Exhibit 10.47 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
	10.34	—	Omnibus Agreement dated November 21, 2002 between Brigham Exploration Company, Brigham Oil & Gas, L.P. and certain Credit Suisse First Boston entities (filed as Exhibit 10.48 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
	10.35	—	Securities Purchase Agreement dated December 20, 2002 between Brigham Exploration Company and certain Credit Suisse First Boston Entities (filed as Exhibit 10.49 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
	10.36	—	Registration Rights Agreement dated December 20, 2002 between Brigham Exploration Company and Shell Capital Inc. (filed as Exhibit 10.50 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

Number			Description
	10.37	—	Second Amendment to Registration Rights Agreement dated December 21, 2002 between Brigham Exploration Company and Credit Suisse First Boston Entities (filed as Exhibit 10.51 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
	10.38	—	Third Amendment to Registration Rights Agreement May 24, 2004 between Brigham Exploration Company and Credit Suisse First Boston Entities (filed as Exhibit 99.1 to Brigham’s Current Report on Form 8-K (filed July 20, 2004), and incorporated herein by reference).
	10.39	—	Stockholders Voting Agreement dated December 20, 2002 between Brigham Exploration Company, certain Credit Suisse First Boston entities, Ben M. and Anne L. Brigham, Harold D. Carter, General Atlantic Partners, III, L.P., GAP-Brigham Partners, L.P. GAP Co Investment Partners II, L.P., Aspect Resources, LLC and certain officers (filed as Exhibit 10.52 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
	10.40	—	Second Amended and Restated Credit Agreement, dated March 21, 2003 between Brigham Oil & Gas, L.P., Société Générale, Societe Generale, The Royal Bank of Scotland plc and Bank of America, N.A. (filed as Exhibit 10.53 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
	10.41†	—	Third Amended and Restated Credit Agreement, dated January 21, 2005 between Brigham Oil & Gas, L.P., Société Générale, Societe Generale, The Royal Bank of Scotland plc and Bank of America, N.A.
	10.42	—	Amended and Restated Subordinated Credit Agreement, dated March 21, 2003 between Brigham Oil & Gas, L.P., and The Royal Bank of Scotland plc (filed as Exhibit 10.54 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
	10.43	—	First Amendment to Amended and Restated Subordinated Credit Agreement dated December 9, 2003 between Brigham Oil & Gas, L.P., and The Royal Bank of Scotland plc (filed as Exhibit 10.38 to Brigham’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
	10.44	—	Second Amendment to Amended and Restated Subordinated Credit Agreement dated May 4, 2004 between Brigham Oil & Gas, L.P., and The Royal Bank of Scotland plc (filed as Exhibit 99.3 to Brigham’s Current Report on Form 8-K (filed July 20, 2004), and incorporated herein by reference).
	10.45†	—	Second Amended and Restated Subordinated Credit Agreement dated January 21, 2005 between Brigham Oil & Gas, L.P., and The Royal Bank of Scotland plc.
	21†	—	Subsidiaries of the Registrant.
	23.1†	—	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
	23.2†	—	Consent of Cawley Gillespie & Associates, Inc.
	31.1†	—	Certification of Chief Executive Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002
	31.2†	—	Certification of Chief Financial Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002
	32.1†	—	Certification of Chief Executive Officer pursuant to 18 U.S.C. SECTION 1350
	32.2†	—	Certification of Chief Financial Officer pursuant to 18 U.S.C. SECTION 1350

*  Management contract or compensatory plan.

†  Filed herewith.

EX-10.13

EXHIBIT 10.13

THIRD AMENDMENT TO TWO BRIDGEPOINT LEASE AGREEMENT

      Reference is made to that certain Two Bridgepoint Lease Agreement dated September 20, 1996 as amended by First Amendment to Two Bridgepoint Lease Agreement dated April 11, 1997 and Second Amendment to Two Bridgepoint Lease Agreement dated October 13, 1997 and Commencement Date Declaration dated November 26, 1997 (collectively, the “Lease”), by and between Investors Life Insurance Company of North America (“Original Landlord”) and Brigham Oil & Gas, L.P., a Delaware limited partnership (“Tenant”).

      WHEREAS, Hub Properties Trust, a Maryland real estate investment trust (“Landlord”) has succeeded to the interest of Original Landlord under the Lease whose address is c/o REIT Management & Research, Inc., 400 Centre Street, Newton, MA 02158; and

      WHEREAS, pursuant to the Lease, Landlord leased to Tenant and Tenant leased from Landlord certain premises (the “Premises”) more particularly described in and subject to and upon the terms and conditions set forth in the Lease; and

      WHEREAS, Tenant has exercised its Right of First Refusal to increase the size of the Premises by an additional 4,696 square feet.

      NOW, THEREFORE, in consideration of the foregoing and for other consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Landlord and Tenant agree to the following terms and conditions and furthermore agree that the Lease shall be amended, as follows:

      1. The definition of “Premises” set forth in Section 1.01 of the Lease is hereby amended to reflect the following:

      "(i) For the period commencing on July 15, 1997 and expiring October 31, 1998, 20,151 rentable square feet on the fourth and fifth floors of the Building (the “Initial Space”) plus an additional 9,480 rentable square feet on the fourth floor of the Building (the “1st Option Space”); and (ii) for the period commencing November 1, 1998 and thereafter, the Initial Space, the 1st Option Space plus 4,696 rentable square feet on the fourth floor of the Building (the “Additional Space”), all as more particularly set forth on Exhibit A-3 hereto for a total of 34,327 square feet.”

      2. Landlord and Tenant hereby acknowledge that Tenant’s rights as to the 1st Option Space set forth in Section 2.05 have been exercised.

      3. Tenant acknowledges that Landlord has performed all work required to the Additional Space except for completion of so-called “punch list” items.

      4. The definition of “Base Rent” set forth in Section 3.01 of the Lease shall be amended to reflect Base Rent payable in accordance with Exhibit J attached hereto.

      5. Exhibits A-3 and Exhibit J attached hereto shall be deemed added to the Lease.

      6. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Lease.

      Except as herein specifically amended, this Lease is hereby ratified and confirmed.

      IN WITNESS WHEREOF, the parties have hereto executed this Third Amendment to Two Bridgepoint Lease Agreement this ___day of November, 1998.

LANDLORD: HUB PROPERTIES TRUST
By:	/s/ David M. Legore
	Name:	David M. Legore
	Its: Sr. Vice President

TENANT : BRIGHAM OIL & GAS, L.P.
By:	Brigham, Inc.
	Its: Managing General Partner

By:	/s/ David T. Brigham
Name : David T. Brigham
Its: Vice President

EXHIBIT J
BRIGHAM OIL & GAS, L.P.
RENT SCHEDULE

			Rent		Monthly
Term	Sq. Ftg.		Per Month		Amortized Rent		Total
Commencement through 10/31/98:		29,631	$	56,792.75	$	3,389.00	$	60,181.75
11/01/98 through 6/30/02:		29,631	$	56,792.75	$	3,389.00	$	60,181.75
		4,696		9,000.67		1,354.48		10,355.15
							$	70,536.90
7/01/02 through 6/30/07:		29,631	$	59,262.00	$	3,389.00	$	62,651.00
		4,696		9,392.00		1,354.48		10,746.48
							$	73,397.48

EX-10.14

EXHIBIT 10.14

FOURTH AMENDMENT TO LEASE

      This Fourth Amendment to Lease (the “Amendment”) is entered into this 7^th day of February, 2002 by and between HUB PROPERTIES TRUST, a Maryland real estate investment trust (“Landlord”) and BRIGHAM OIL AND GAS, L.P., a Delaware limited partnership (“Tenant”).

WITNESSETH:

      WHEREAS, Investors Life Insurance Company of North America (“Original Lessor”) and Tenant entered into that certain Two Bridgepoint Lease Agreement dated September 20, 1996 (the “Original Agreement”) as amended by First Amendment to Two Bridgepoint Lease Agreement dated April 11, 1997 (the “First Amendment”), Second Amendment to Two Bridgepoint Lease Agreement dated October 13, 1997 (the “Second Amendment”), and Commencement Date Declaration dated November 26, 1997 (the “Declaration”), with respect to certain premises located at Two Bridgepoint, located at 6300 Bridgepoint Parkway, Austin, Travis County, Texas, as more particularly described in the Lease; and

      WHEREAS, Landlord, as successor to Original Lessor, and Tenant entered into that certain Third Amendment to Two Bridgepoint Lease Agreement dated November, 1998 (the “Third Amendment”); and

      WHEREAS, the Original Agreement, the First Amendment, the Second Amendment, the Declaration, and the Third Amendment are hereinafter referred to the “Lease”; and

      WHEREAS, Landlord and Tenant desire to amend the Lease, subject to and upon the terms and conditions hereinafter provided;

      NOW THEREFORE, in consideration of the foregoing and for other consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:

      1. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the Lease.

      2. Section 15.19 of the Lease is hereby amended by inserting the following at the end of the third sentence thereof; and

Furthermore, for the period commencing January 1, 2002, and thereafter, so long as Tenant is leasing all four (4) of the initially provided executive parking spaces (the “Initial Spaces”) Landlord shall, following reasonable prior notice from Tenant to Landlord, provide as many as four (4) additional executive parking spaces (the “Additional Spaces”) beneath the Building at a cost of $100.00 per space per month. The Initial Spaces and the Additional Spaces are hereinafter collectively referred to as the “Executive Spaces”. Tenant shall notify Landlord in writing (“Tenant’s Parking Notice”) of Tenant’s election to lease some or all of

1

the Initial Spaces (and if all of the Initial Spaces are leased, some or all of the Additional Spaces), from time to time as required (but not more often than monthly). Tenant’s Parking Notice shall include the number of Executive Spaces Tenant requests and the date (not less than thirty (30) days after the date of any Tenant’s Parking Notice) on which the lease of such Executive Spaces will commence.

      3. Section 15.08 of the lease is hereby amended to reflect the address of Landlord to be as follows:

Hub Properties Trust, c/o REIT Management & Research, LLC Austin Area Office, 800 West 34^th Street, Suite 220, Austin, Texas 78705, Attn. Area Manager, with a copy to Hub Properties Trust, 400 Centre Street, Newton, MA 02458, Attn. Jennifer Clark.

      4. Tenant warrants and represents that it has dealt with no broker in connection with the execution of this Amendments and agrees to indemnify and hold Landlord harmless from and against any and all brokerage claims.

      5. Tenant, its successors and assigns, shall not assert nor seek to enforce any claim for breach of the Lease (as amended) against any of Landlord’s assets other than Landlord’s interest in the Property, and Tenant agrees to look solely to such interest for the satisfaction of any liability or claim against Landlord under the Lease (as amended), it being specifically agreed that in no event whatsoever shall Landlord ever be personally liable for any such liability. Tenant further acknowledges that the Declaration of Trust of Hub Properties Trust provides, and Tenant agrees, that no trustee, officer, director, general or limited partner, member, shareholder, beneficiary, employee or agent (including any person or entity from time to time engaged to supervise and/or manage the operation of Landlord) shall be held to any liability, jointly or severally, for any debt, claim, demand, judgment, decree, liability or obligation of any kind (in tort, contract or otherwise) of, against or with respect to Landlord or arising out of any action taken or omitted for or on behalf of Landlord.

      6. As amended hereby, the Lease is hereby ratified and confirmed.

2

      IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date above first written.

LANDLORD: HUB PROPERTIES TRUST
By:	/s/ Jennifer B. Clark
	Name:	Jennifer B. Clark
	Title:	Senior vice President

TENANT:

BRIGHAM OIL & GAS, L.P.
 

By:  Brigham, Inc.

Its:   Managing General Partner 

By:	/s/ David T. Brigham
	Name:	David P. Brigham
	Its: Vice President

3

EX-10.15

EXHIBIT 10.15

FIFTH AMENDMENT TO LEASE

      This Fifth Amendment to Lease (this “Amendment”) is made as of December 20, 2004 by and between Hub Properties Trust, a Maryland real estate investment trust (“Landlord”), and Brigham Oil & Gas, L.P., a Delaware limited partnership (“Tenant”).

      WHEREAS, Landlord and Tenant are parties to that certain Two Bridgepoint Square Lease Agreement, dated as of September 20,1996, as amended by a First Amendment to Two Bridgepoint Lease Agreement dated April 11, 1997, a Second Amendment to Two Bridgepoint Lease Agreement dated October 13, 1997, a Commencement Date Declaration dated November 26, 1997, a Third Amendment to Two Bridgepoint Lease Agreement dated November, 1998 and a Fourth Amendment to Lease dated February 7, 2002 (as so amended, the “Lease”), pursuant to which Tenant has leased from Landlord certain premises containing a total of 34,327 rentable square feet of space on the fourth and fifth floors of the building known as Two Bridgepoint, located at 6300 Bridgepoint Parkway, Austin, Travis County, Texas, as more particularly described in the Lease; and

      WHEREAS, the Term of the Lease is scheduled to expire on June 30, 2007; and

      WHEREAS, Landlord and Tenant desire to extend the Term of the Lease upon the terms and conditions hereinafter set forth;

      NOW, THEREFORE, in consideration of the foregoing and for other consideration the mutual receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree that the Lease is hereby amended as follows:

      1. Capitalized terms not otherwise defined in this Amendment shall have the meaning attributed to such terms in the Lease.

      2. Section 2.01 of the Lease is amended to provide that the Term of the Lease is extended for a period of five (5) years and that the Expiration Date is June 30, 2012.

      3. Section 3.01 of the Lease is amended to provide that the Base Rent for the Premises for the portion of the Term of the Lease commencing on January 1, 2005 shall be as follows:

-1-

	Rate per
	square foot						Additional		Total
	rentable area		Annual		Monthly		Monthly		Monthly
Period	net annum		Base Rent		Base Rent		Base Rent		Base Rent
01/01/05 — 12/31/05	$	18.50	$	635,049.50	$	52,920.79	$	4,743.48	$	57,664.27
01/01/06 — 12/31/06	$	19.00	$	652,213.00	$	54,351.08	$	4,743.48	$	59,094.56
01/01/07 — 06/30/07	$	19.50	$	669,376.50	$	55,781.37	$	4,743.48	$	60,524.85
07/01/07 — 12/31/07	$	19.50	$	669,376.50	$	55,781.37	$	0	$	55,781.37
01/01/08 — 12/31/08	$	20.00	$	686,540.00	$	57,211.67	$	0	$	57,211.67
01/01/09 — 12/31/09	$	20.50	$	703,703.50	$	58,641.96	$	0	$	58,641.96
01/01/10 — 12/31/10	$	21.00	$	720,867.00	$	60,072.25	$	0	$	60,072.25
01/01/11 — 12/31/11	$	21.50	$	738,030.50	$	61,502.54	$	0	$	61,502.54
01/01/12 — 06/30/12	$	22.00	$	755,194.00	$	62,932.83	$	0	$	62,932.83

      4. Section 3.02 of the Lease is amended to provide that the Expense Stop for the portion of the Term of the Lease commencing on January 1, 2005 shall be the amount of Operating Expenses of the Building for calendar year 2005.

      5. Tenant currently occupies the Premises and agrees to accept the Premises in their “as is” condition as of the date of this Amendment.

      Provided this Lease is then in full force and effect, Landlord will provide Tenant with an improvement allowance (the “Landlord’s Contribution”) as hereinafter provided equal to the lesser of (i) $343,270 (the “Maximum Contribution”), or (ii) the third-party costs paid or incurred by Tenant to design and construct alterations and improvements to the Premises after the date of this Amendment (hereinafter, “Tenant’s Work”), including the fees and reimbursable expenses of Tenant’s independent architectural and engineering professionals; all contractor charges for labor, materials, general conditions and contractor’s overhead and profit; all permitting fees; and the fee of any independent construction manager.

      Tenant’s Work and Tenant’s contractors and technicians shall be subject to Landlord’s approval as provided in Section 6.01 of the Lease and the Rules and Regulations, and Tenant’s Work shall be performed in accordance with the provisions of said Section 6.01, the Rules and Regulations and all other provisions of the Lease applicable thereto.

      Tenant may request payment of Landlord’s Contribution in installments, but not more often than once per month. Each request for payment of any part of Landlord’s Contribution (hereinafter a “Requisition”) shall be for alterations or improvements that are substantially complete and shall include (i) a reasonably detailed description of the items of Tenant’s Work covered by the Requisition, (ii) a breakdown of the costs of Tenant’s Work covered by the Requisition with copies of invoices from Tenant’s contractors, architects, suppliers and others, as applicable, substantiating such costs, (iii) executed waivers of mechanic’s or material supplier’s liens (in such form as Landlord shall reasonably require) waiving, releasing and relinquishing all liens, claims and rights to lien under applicable laws on account of any labor, materials and/or equipment furnished by such party through the date of the Requisition (provided that any such waiver may be conditioned upon receipt of the amount requested for such party in the requisition), and (iv) a certification by an appropriate officer of Tenant that Tenant has made full payment of all of the costs of Tenant’s Work covered by the prior Requisitions paid by Landlord. Landlord shall pay each Requisition to Tenant within thirty (30) days after Landlord’s receipt of such Requisition with all required supporting documentation unless, within such period, Landlord notifies Tenant of its rejection of all or part of such Requisition as a result of

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Tenant’s failure to comply with the requirements of this Paragraph 5 specifying the reasons therefore, and, if Landlord so notifies Tenant, then upon reasonable satisfaction of such objections, Landlord shall pay any amount withheld within ten (10) days.

      Notwithstanding any provision of this Paragraph 5 to the contrary, Landlord shall have no obligation to pay any Requisition submitted later than December 31, 2008 or at any time during which Tenant shall be in default of any of its obligations under the Lease.

      6. Section 2.03 and Exhibit E of the Lease are deleted. Said Section 2.03 is replaced with the following:

        So long as this Lease is still in full force and effect, and Brigham Oil & Gas, L.P. (or any successor by merger or reorganization, or any parent or subsidiary of such Tenant) shall actually occupy the entire Premises except for any portion thereof that is then occupied by Vision Flow, Inc. or Media Excel, Inc. pursuant to either the Sublease dated August 1, 2003 between Tenant and Vision Flow, Inc. and Media Excel, Inc., or the Sublease dated November 19, 2004 between Tenant and Media Excel, Inc. (the “Subleases”) (or Landlord, in its sole discretion, at any time shall elect to waive such conditions), Tenant shall have the right to extend the term of this Lease for one (1) additional period (the “Extended Term”) of five (5) years. The Extended Term shall commence on July 1, 2012 and shall expire on June 30, 2017. All of the terms, covenants and provisions of this Lease applicable immediately prior to the commencement of the Extended Term shall apply to each the Extended Term except that (i) the Base Rent for the Extended Term shall be the Market Rate (as hereinafter defined) for the Premises determined as of the commencement of such Extended Term, as designated by Landlord by notice to Tenant (“Landlord’s Notice”), but subject to Tenant’s right to dispute as hereinafter provided, and (ii) Tenant shall have no further right to extend the term of this Lease beyond the Extended Term.

        If Tenant shall elect to exercise the aforesaid option, it shall do so by giving Landlord notice of its election ( the “Option Notice”) not later than one year, nor sooner than twenty-four (24) months, prior to the commencement of the Extended Term. The Option Notice shall request Landlord’s determination of Market Rate within thirty (30) days and shall apply to the entire Premises and shall be unconditional and irrevocable by Tenant. If Tenant fails to give the Option Notice to Landlord, the Term of this Lease shall automatically terminate no later than the last day of the current Term, and Tenant shall have no further option to extend the Term of this Lease, it being agreed that time is of the essence with respect to the giving of the Option Notice. If Tenant shall extend the Term hereof pursuant to the provisions of this Section, such extension shall be automatically effected without the execution of any additional documents, but Landlord and Tenant shall, at the request of either, execute an amendment to this Lease confirming the Base Rent for the Extended Term.

        As used. in this Section, “Market Rate” shall mean a fair market fixed rent (which may include periodic adjustments) for the Premises for the Extended Term commensurate with the fixed annual rents then being charged in the Building and in comparable office buildings located in the vicinity of the Building for comparable premises under leases for a similar term, taking into account all relevant factors (determined as set forth below).

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        Landlord shall give Tenant Landlord’s Notice not later than thirty (30) days after Tenant gives an Option Notice. If Tenant disagrees with the Market Rate designated in Landlord’s Notice, Tenant shall notify Landlord of such disagreement and of Tenant’s designation of the Market Rate by notice given not later than fifteen (15) days after the giving of Landlord’s Notice, and if Tenant fails to so notify Landlord then the Market Rate shall be as designated in Landlord’s Notice, and such designation shall be final and conclusive. If Tenant notifies Landlord that it disagrees with Landlord’s designation of the Market Rate and the parties cannot agree upon the Market Rate by the date that is sixty (60) days following Landlord’s Notice, then either (i) Tenant may withdraw and cancel its Option Notice by notice given to Landlord not later than five (5) days after the expiration of such sixty (60) day period (time being of the essence), in which case the Option Notice shall be null, void and of no effect and the Term of this Lease shall expire as if the Option Notice had never been given, or (ii) the Market Rate shall be submitted to appraisal as follows: Within fifteen (15) days after the expiration of such sixty (60) day period, Landlord and Tenant shall each give notice to the other specifying the name and address of the appraiser each has chosen; provided, however, if only one appraiser shall be chosen whose name and address shall have been given to the other party within such fifteen (15) day period and who shall have the qualifications hereinafter set forth, that sole appraiser shall determine the Market Rate for the Extend Term as herein provided. The two appraisers so chosen shall meet within ten (10) days after the second appraiser is appointed and if, within twenty (20) days after the second appraiser is appointed, the two appraisers shall not agree upon a determination of the Market Rate in accordance with the following provisions of this Section, they shall together appoint a third appraiser.

        If said two appraisers cannot agree upon the appointment of a third appraiser within ten (10) days after the expiration of such twenty (20) day period, then either party, on behalf of both and on notice to the other, may request such appointment by the nearest office of the American Arbitration Association (or any successor organization) in accordance with its then prevailing rules. In the event that all three appraisers cannot agree upon such Market Rate within ten (10) days after the third appraiser shall have been selected, then each appraiser shall submit his or her designation of such Market Rate to the other two appraisers in writing; and Market Rate shall be determined by calculating the average of the two numerically closest (or, if the values are equidistant, all three) values so determined.

        Each of the appraisers selected as herein provided shall be a licensed commercial real estate broker who specializes in leasing office space and who has not less than ten (10) years’ experience representing landlords and/or tenants in the leasing of premises comparable to the Premises at buildings comparable to the Building in Austin, Texas. Each party shall pay the fees and expenses of the appraiser it has selected and the fees of its own counsel. Each party shall pay one half (1/2) of the fees and expenses of the third appraiser (or the sole appraiser, if applicable) and all other expenses of the appraisal. The decision and award of the appraiser(s) shall be in writing and shall be final and conclusive on all parties, and counterpart copies thereof shall be delivered to both Landlord and Tenant. Judgment upon the award of the appraiser(s) may be entered in any court of competent jurisdiction.

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        Both appraisers or a majority of them (or the sole appraiser, if applicable) shall determine the Market Rate of the Premises for the Extended Term and render a decision and award as to their determination to both Landlord and Tenant (a) within twenty (20) days after the appointment of the second appraiser, (b) within twenty (20) days after the appointment of the third appraiser or (c) within fifteen (15) days after the appointment of the sole appraiser, as the case may be. In rendering such decision and award, the appraiser(s) shall assume that, subject to the provisions of Section 8.01, in the event the Premises are destroyed or damaged by fire or other casualty prior to the commencement of the applicable Extended Term, they have been fully restored. The appraisers shall also take into consideration any increases or possible increases in rent then being included in leases for comparable space in the Building or in comparable buildings based on changes in price indices, including cost of living, or other similar increases or periodic market rental adjustments. In rendering such decision and award, the appraiser(s) shall consider the fair market annual rents (as the same may increase over time) then being charged for comparable space in comparable buildings in the greater Austin area, but shall not modify the provisions of this Lease.

        If the dispute between the parties as to the Market Rate has not been resolved before the commencement of the Extended Term, then Tenant shall pay the Base Rent under the Lease based upon the Market Rate designated by Landlord in Landlord’s Notice until either the agreement of the parties as to the Market Rate, or the decision of the appraiser(s), as the case may be, at which time Tenant shall pay any underpayment of the Base Rent to Landlord, or Landlord shall refund any overpayment of the Base Rent to Tenant.

        Landlord and Tenant hereby waive the right to an evidentiary hearing before the appraiser(s) and agree that the appraisal shall not be an arbitration nor be subject to state or federal law relating to arbitrations.

      7. Sections 2.04 and Exhibit F of the Lease are deleted. Said Section 2.04 is replaced with the following.

        So long as (i) this Lease is still in full force and effect, (ii) there then exists no Default of Tenant, and (iii) Brigham Oil and Gas, L.P. (or any successor by merger or reorganization, or any subsidiary or parent) shall actually occupy the entire Premises except for any portion thereof that is then occupied by Vision Flow, Inc. or Media Excel, Inc. pursuant either of the Subleases (or Landlord, in its sole discretion, at any time shall elect to waive such conditions), then if at any time after January 1, 2005, Suite 400 and/or Suite 420 of the Building, which are substantially as outlined on Exhibit A-4 (collectively, the “ROFO Space”) shall become available for lease by Landlord, Landlord shall notify Tenant of the Suite(s) so available (the “Offered Space”), together with the rental rate and other terms and conditions (collectively, the “Terms”) under which in good faith Landlord intends to offer the Offered Space to third parties (which may include a term whose expiration date is not co-terminous with the term applicable to the space then constituting the Premises demised hereunder) and the date on which the Offered Space is expected to be available, and Tenant may, by giving notice to Landlord within five (5) business days (i.e., weekdays that are not normal business holidays as defined in Section 5.01 of the Lease) after receipt of such notice, irrevocably elect to lease all, but not less than all, of the

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Offered Space on the Terms. If Tenant shall have so elected to lease the Offered Space, it shall enter into an amendment to this Lease, in a commercially reasonable form prepared by Landlord, within ten (10) business days after it shall have received the same from Landlord, confirming the lease of the Offered Space to Tenant on the Terms. If Tenant shall not elect to lease the Offered Space within the aforesaid five (5) business-day period, then Landlord shall thereafter for the next twelve (12) month period (after which if Landlord shall still desire to lease such space the first sentence of this Section 2.04 shall again apply) be free to lease any or all of such Offered Space to a third party or parties from time to time on such terms and conditions as it may deem appropriate (unless the fixed rent under such lease, taking into account any rent concessions, shall be at least ten percent (10%) less than that included in the Terms, in which case before Landlord may enter into such a lease Landlord shall again comply with the provisions set forth above), it being agreed that time is of the essence with respect to the exercise of Tenant’s rights under this paragraph.

        Notwithstanding any provision or exhibit to the Lease to the contrary, Landlord and Tenant agree that (i) the portion of the Premises located on the fourth floor of the Building designated as Suite 410 in Exhibit A-4 is deemed to contain 14,176 rentable square feet of space, (ii) Suite 400 is deemed to contain 2,967 rentable square feet of space, (iii) Suite 420 is deemed to contain 2,731 rentable square feet of space, and (iv) in the event that the Premises shall, at any time, include all of Suites 410, Suite 400 and 420, then the portion of the Premises located on the fourth floor of the Building shall be deemed to contain a total of 19,514 rentable square feet of space.

        The provisions of this Section shall not apply, and space shall not be deemed “available for lease” hereunder if Landlord shall intend to renew or extend the lease with (or grant a new lease to) the entity (or any party affiliated with such entity) then occupying such space.

      8. Section 2.05 and Exhibit G of the Lease are deleted.

      9. Section 2.06 of the Lease is deleted and replaced with the following;

        Provided that Tenant is not in default beyond applicable cure periods at the time it gives Landlord notice exercising the option herein granted (or Landlord in its sole discretion at any time shall elect to waive such condition), then if Tenant and all of its subsidiaries and all affiliates (but not individuals) of Tenant shall intend to cease to conduct business in Travis County Texas and in all adjacent counties by the Early Termination Date (hereinafter defined) for a valid business purpose and not for the principal purpose of exercising Tenant’s termination rights hereunder, Tenant may terminate the Term of this Lease by giving notice of its election to terminate to Landlord accompanied by a certification from Tenant’s Chief Financial Officer of the foregoing intention and payment of the Termination Fee (as hereinafter defined). In the event Tenant gives such notice, the Term of the Lease shall terminate on the date (the “Early Termination Date”) that is nine (9) months after the date Landlord receives such notice. Tenant shall pay to Landlord a termination fee (the “Termination Fee”), contemporaneously with the giving of such notice and certification, equal to the sum of the following:

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        (a) the unamortized portion (as of the Early Termination Date) of (i) the Maximum Contribution (as defined in paragraph 5 of the Fifth Amendment to Lease), (ii) the $144,173 brokerage commission incurred by Landlord in connection with this Amendment, and (iii) the actual, third-party legal fees paid by Landlord in connection with this Amendment (but in no event more than $6,000), such amounts to be amortized over the portion of the Term commencing January 1, 2005 and expiring June 30, 2012, with interest at the rate of 10% per annum; plus

        (b) with respect to any additional space in the Building leased by Tenant after the date of the Fifth Amendment to Lease, the unamortized portion (as of the Early Termination Date) of the sum of the following costs and expenses with respect to such additional space: (i) the value of any free or abated Rent, (ii) any contribution made by Landlord to Tenant toward the cost of designing or constructing leasehold improvements and/or for moving or other costs incurred by Tenant and the cost of any leasehold improvements performed by Landlord for Tenant, (iii) any brokerage commissions paid by Landlord in connection with the leasing of such additional space, and (iv) the legal fees paid by Landlord in connection with the leasing of such additional space, such amounts to be amortized over the Term of the Lease applicable to the additional space with interest at the rate of 10% per annum.

        Landlord may, in its sole discretion, elect to treat any notice of termination which is not accompanied by either or both the certification or Termination Fee as null and void or as effective to terminate the Term as of the date nine (9) months after Landlord’s receipt thereof (while not discharging Tenant from its obligation to pay the Termination Fee).

      10. Tenant warrants and represents that it has dealt with no broker in connection with the execution of this Amendment other than The Staubach Company of Central Texas, LLC, whose commissions will be paid by Landlord, and Tenant agrees to indemnify and hold Landlord harmless from and against any and all brokerage claims from any other brokers with whom Tenant may have dealt in connection with this Amendment.

      11. Tenant represents that it has not assigned the Lease and that the Premises are not subject to any subleases except for the Subleases.

      12. Exhibit A-4 to this Amendment is added to the Lease as Exhibit A-4 of the Lease. Exhibit A-4 replaces all prior floor plans of the fourth floor of the Building.

      13. As amended hereby, the Lease is hereby ratified and confirmed.

[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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      IN WITNESS WHEREOF, the parties have hereto executed this Amendment as of the date first above appearing.

LANDLORD: HUB PROPERTIES TRUST
By:	/s/ Jennifer B. Clark
	Jennifer B. Clark
	Title:	Sr. Vice President

TENANT: BRIGHAM OIL & GAS, L.P.
By:	/s/ David T. Brigham
	Name:	David T. Brigham
	Title:	Executive Vice President

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EX-10.41

EXHIBIT 10.41

Execution Copy

THIRD AMENDED AND RESTATED CREDIT AGREEMENT

Among

BRIGHAM OIL & GAS, L.P.,

as Borrower,

BRIGHAM EXPLORATION COMPANY,
and
BRIGHAM, INC.,

as Guarantors,

THE LENDERS PARTY HERETO FROM TIME TO TIME

as Lenders,

SOCIÉTÉ GÉNÉRALE,

as Lead Arranger, Administrative Agent and as Issuing Lender,

THE ROYAL BANK OF SCOTLAND plc,

as Co-Arranger and Documentation Agent,

and

BANK OF AMERICA, N.A.,

as Co-Arranger and Syndication Agent

January 21, 2005

TABLE OF CONTENTS

	Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS		1
Section 1.01 Certain Defined Terms		1
Section 1.02 Computation of Time Periods		19
Section 1.03 Accounting Terms; Changes in GAAP		19
Section 1.04 Types of Advances		20
Section 1.05 Miscellaneous		20
ARTICLE II CREDIT FACILITIES		20
Section 2.01 Revolving Credit Facility		20
Section 2.02 Borrowing Base		22
Section 2.03 Method of Borrowing		24
Section 2.04 Reduction of the Commitments		26
Section 2.05 Prepayment of Advances		27
Section 2.06 Repayment of Advances		28
Section 2.07 Letters of Credit		29
Section 2.08 Fees		32
Section 2.09 Interest		33
Section 2.10 Payments and Computations		34
Section 2.11 Sharing of Payments, Etc		35
Section 2.12 Breakage Costs		36
Section 2.13 Increased Costs		36
Section 2.14 Taxes		37
ARTICLE III CONDITIONS OF LENDING		40
Section 3.01 Conditions Precedent to Closing Date		40
Section 3.02 Conditions Precedent to All Borrowings		43
ARTICLE IV REPRESENTATIONS AND WARRANTIES		44
Section 4.01 Corporate Existence; Subsidiaries		44
Section 4.02 Corporate Power		44
Section 4.03 Authorization and Approvals		44
Section 4.04 Enforceable Obligations		44
Section 4.05 Financial Statements		45

	Page
Section 4.06 True and Complete Disclosure		45
Section 4.07 Litigation		45
Section 4.08 Taxes		46
Section 4.09 Pension Plans		46
Section 4.10 Condition of Property; Casualties		47
Section 4.11 Security Instruments		48
Section 4.12 No Burdensome Restrictions; No Defaults		49
Section 4.13 Environmental Condition		49
Section 4.14 Gas Contracts		50
Section 4.15 Compliance with Laws		50
Section 4.16 Material Agreements		51
Section 4.17 Organizational Documents		51
Section 4.18 Guarantors		51
Section 4.19 Insurance		51
Section 4.20 Use of Proceeds		51
Section 4.21 Investment Company Act		51
Section 4.22 Public Utility Holding Company Act		51
Section 4.23 Transmitting Utility		52
ARTICLE V AFFIRMATIVE COVENANTS		52
Section 5.01 Compliance with Laws, Etc		52
Section 5.02 Maintenance of Insurance		52
Section 5.03 Preservation of Corporate Existence, Etc		53
Section 5.04 Payment of Taxes, Etc		53
Section 5.05 Inspection; Books and Records		53
Section 5.06 Reporting Requirements		53
Section 5.07 Maintenance of Property		56
Section 5.08 Environmental Laws		57
Section 5.09 Payment of Trade Payables		57
Section 5.10 Use of Proceeds		57
Section 5.11 Additional Collateral		57
Section 5.12 New Subsidiaries		58
Section 5.13 Title		58
Section 5.14 Further Assurances		58

ii

	Page
ARTICLE VI NEGATIVE COVENANTS		59
Section 6.01 Liens, Etc		59
Section 6.02 Debts, Guaranties, and Other Obligations		59
Section 6.03 Agreements Restricting Liens and Distributions		61
Section 6.04 Merger or Consolidation		61
Section 6.05 Sales of Assets		61
Section 6.06 Restricted Payments		62
Section 6.07 Investments and Acquisitions		62
Section 6.08 Affiliate Transactions		62
Section 6.09 Compliance with ERISA		62
Section 6.10 Sales and Leasebacks		63
Section 6.11 Change of Business		64
Section 6.12 Use of Proceeds		64
Section 6.13 Gas Imbalances, Take-or-Pay or Other Prepayments		64
Section 6.14 Additional Subsidiaries		64
Section 6.15 Limitation on Leases		64
Section 6.16 Equity Interests of Partners		64
Section 6.17 Change of Name; Fiscal Year; Accounting Method		64
Section 6.18 Current Ratio		65
Section 6.19 Interest Coverage Ratio		65
Section 6.20 Restrictions on Limited Partners		65
Section 6.21 Subordinated Debt		65
Section 6.22 Advance Payment Contracts		65
ARTICLE VII EVENTS OF DEFAULT; REMEDIES		66
Section 7.01 Events of Default		66
Section 7.02 Optional Acceleration of Maturity		67
Section 7.03 Automatic Acceleration of Maturity		68
Section 7.04 Right of Set-off		68
Section 7.05 Non-exclusivity of Remedies		69
Section 7.06 Application of Proceeds		69
ARTICLE VIII THE GUARANTY		69
Section 8.01 Liabilities Guaranteed		69
Section 8.02 Nature of Guaranty		69

iii

	Page
Section 8.03 Agent’s Rights		70
Section 8.04 Guarantor’s Waivers		70
Section 8.05 Maturity of Obligations, Payment		71
Section 8.06 Agent’s Expenses		71
Section 8.07 Liability		71
Section 8.08 Events and Circumstances Not Reducing or Discharging any Guarantor’s Obligations		71
Section 8.09 Subordination of All Guarantor Claims		73
Section 8.10 Claims in Bankruptcy		73
Section 8.11 Payments Held in Trust		74
Section 8.12 Liens Subordinate		74
Section 8.13 Guarantor’s Enforcement Rights		74
ARTICLE IX THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER		74
Section 9.01 Authorization and Action		74
Section 9.02 Administrative Agent’s Reliance, Etc		74
Section 9.03 The Administrative Agent and Its Affiliates		75
Section 9.04 Lender Credit Decision		75
Section 9.05 Indemnification		75
Section 9.06 Successor Administrative Agent and Issuing Lender		76
Section 9.07 Other Agents		77
Section 9.08 Collateral Matters		77
ARTICLE X MISCELLANEOUS		78
Section 10.01 Amendments, Etc		78
Section 10.02 Notices, Etc		79
Section 10.03 No Waiver; Remedies		79
Section 10.04 Costs and Expenses		79
Section 10.05 Binding Effect		80
Section 10.06 Lender Assignments and Participations		80
Section 10.07 Indemnification		82
Section 10.08 Execution in Counterparts		82
Section 10.09 Survival of Representations, Etc		82
Section 10.10 Severability		82
Section 10.11 Governing Law		83

iv

	Page
Section 10.12 Submission To Jurisdiction; Waivers		83
Section 10.13 Waiver of Jury Trial		83
Section 10.14 Oral Agreements		84
Section 10.15 Dissemination of Information		84
Section 10.16 Production Proceeds		84
Section 10.17 Replacement of Lenders		85
Section 10.18 Amendment and Restatement		85
EXHIBITS:
Exhibit A - Form of Assignment and Acceptance		A-1
Exhibit B - Form of Compliance Certificate		B-1
Exhibit C - Form of Notice of Borrowing		C-1
Exhibit D - Form of Notice of Conversion or Continuation		D-1
Exhibit E - Form of Note		E-1
Exhibit F - Form of Mortgage Amendment		F-1
Exhibit G - Form of Pledge Agreement		G-1

v

THIRD AMENDED AND RESTATED CREDIT AGREEMENT

     This Third Amended and Restated Credit Agreement dated as of January 21, 2005 is among Brigham Oil & Gas, L.P., a Delaware limited partnership (“Borrower”), Brigham Exploration Company, a Delaware corporation (“Brigham Exploration”), Brigham, Inc., a Nevada corporation (the “General Partner”), the lenders party hereto from time to time (“Lenders”), Société Générale, as lead arranger (in such capacity, the “Lead Arranger”), as administrative agent for such Lenders (in such capacity, the “Administrative Agent”) and as issuing lender for such Lenders (in such capacity, the “Issuing Lender”), The Royal Bank of Scotland plc, as co-arranger and as documentation agent (the “Documentation Agent”), and Bank of America, N.A., as co-arranger (in such capacity, together with The Royal Bank of Scotland plc in such capacity, the “Co-Arrangers”) and as Syndication Agent (the “Syndication Agent”).

INTRODUCTION

     A. The Borrower, the Guarantors (as defined below), the lenders party thereto, and Société Générale, as agent, are parties to that certain Second Amended and Restated Credit Agreement dated March 21, 2003 (the “Existing Senior Credit Agreement”).

     B. The Borrower, the Lenders and the Administrative Agent desire to amend and restate the Existing Senior Credit Agreement in its entirety. To evidence the credit facility requested hereunder, the Borrower, the Lenders and the Administrative Agent have agreed that this Agreement is an amendment and restatement of the Existing Senior Credit Agreement, not a new or substitute credit agreement or novation of the Existing Senior Credit Agreement, and each reference to an “Advance” or a “Letter of Credit” shall include each Advance made and each Letter of Credit issued heretofore under the Existing Senior Credit Agreement as well as each Advance made and each Letter of Credit issued hereafter under this Agreement.

     Therefore, the Borrower, the Guarantors, the Lenders, the Issuing Lender and the Administrative Agent agree that the Existing Senior Credit Agreement is hereby amended and restated in its entirety as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

     Section 1.01 Certain Defined Terms. As used in this Agreement, the terms defined above shall have the meanings set forth therein and the following terms shall have the following meanings (unless otherwise indicated, such meanings to be equally applicable to both the singular and plural forms of the terms defined):

     “Acceptable Security Interest” in any Property means a Lien which (a) exists in favor of the Administrative Agent for the benefit of the Administrative Agent, the Issuing Lender, the Lenders, and any Swap Counterparty, (b) is superior to all Liens or rights of any other Person in the Property encumbered thereby, other than Permitted Liens, (c) secures the Obligations, and (d) is perfected and enforceable.

     “Adjusted Base Rate” means, for any day, the fluctuating rate per annum of interest equal to the greater of (a) the Base Rate in effect on such day and (b) the Federal Funds Rate in effect on such day plus ¹/2 of 1%.

     “Administrative Agent” means Société Générale, in its capacity as agent pursuant to Article IX, and any successor agent pursuant to Section 9.06.

     “Administrative Agent’s Fee Letter” means the letter dated [November ___, 2004] among the Borrower, the Lead Arranger, and the Administrative Agent.

     “Advance” means any advance hereunder of monies by a Lender to the Borrower as part of a Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance.

     “Advance Payment Contract” means any contract whereby any Person either receives or becomes entitled to receive (either directly or indirectly through a third party for such Person’s account or benefit) any payment (an “Advance Payment”) to be applied toward the payment of the purchase price of Hydrocarbons produced or to be produced from any Properties owned by such Person and which Advance Payment is paid or to be paid more than 90 days in advance of actual delivery of such production to or for the account of the purchaser regardless of such production, and the Advance Payment is, or is to be, applied as payment in full for such production when sold and delivered or is, or is to become applied as payment for a portion only of the purchase price thereof or for a percentage or a share of such production.

     “Affiliate” of any Person shall mean (a) any Person directly or indirectly controlled by, controlling or under common control with such first Person, (b) any director or officer of such first Person or of any Person referred to in clause (a) above and (c) if any Person in clause (a) above is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. For purposes of this definition, any Person which owns directly or indirectly 20% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 20% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to “control” (including, with its correlative meanings, “controlled by” and “under common control with”) such corporation or other Person; provided, however, that “Affiliate” shall not include any Affiliates of the Preferred Shareholders.

     “Affiliated Fund” means, with respect to any Preferred Shareholder, any other fund that is managed or advised by the same manager, general partner or investment advisor as such Preferred Shareholder or by an Affiliate of such manager, general partner or investment advisor.

     “Agents” means the Administrative Agent, the Documentation Agent and the Syndication Agent.

     “Agreement” means this Credit Agreement, as the same may be amended, supplemented, and otherwise modified from time to time.

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     “Applicable Lending Office” means, with respect to each Lender, such Lender’s Domestic Lending Office in the case of a Base Rate Advance and such Lender’s Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

     “Applicable Margin” means, as of any date of determination, the following percentages determined as a function of the Borrower’s Utilization Percentage:

	Eurodollar Rate	Base Rate
Utilization Percentage	Advances	Advances	Commitment Fees
³ 90%	2.00%	1.00%	0.50%
³ 75% and < 90%	1.875%	0.875%	0.375%
³ 50% and < 75%	1.625%	0.625%	0.375%
³ 25% and < 50%	1.375%	0.375%	0.25%
< 25%	1.25%	0.25%	0.25%

     “Arrangers” means the Lead Arranger and the Co-Arrangers.

     “Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of the attached Exhibit A.

     “Base Rate” means a fluctuating interest rate per annum as shall be in effect from time to time equal to the rate of interest publicly announced by Société Générale, as its Base Rate, whether or not the Borrower has notice thereof.

     “Base Rate Advance” means an Advance which bears interest as provided in Section 2.09(a).

     “Borrowing” means a borrowing consisting of simultaneous Advances of the same Type made by each Lender pursuant to Section 2.03(a), continued by each Lender pursuant to Section 2.03(b), or Converted by each Lender to Advances of a different Type pursuant to Section 2.03(b).

     “Borrowing Base” means at any particular time, the Dollar amount determined in accordance with Section 2.02 on account of Proven Reserves attributable to Oil and Gas Properties of the Borrower and its Subsidiaries described in the most recent Independent Engineering Report or Internal Engineering Report, as applicable, delivered to the Administrative Agent and the Lenders pursuant to Section 2.02.

     “Borrowing Base Deficiency” means the aggregate outstanding amount, if any, by which the sum of the Advances plus the Letter of Credit Exposure exceeds the lesser of the (i) Borrowing Base and (ii) the aggregate Commitments.

     “Business Day” means a day of the year on which banks are not required or authorized to close in New York, New York and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on by banks in the London interbank market.

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     “Capital Leases” means, as applied to any Person, any lease of any Property by such Person as lessee which would, in accordance with GAAP, be required to be classified and accounted for as a capital lease on the balance sheet of such Person.

     “Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.

     “Cash Collateral Account” means a special interest bearing cash collateral account pledged by the Borrower to the Issuing Lender containing cash deposited pursuant to Sections 2.05(b), 7.02(b), or 7.03(b) to be maintained with the Issuing Lender in accordance with Section 2.07(g) and bear interest or be invested in the Issuing Lender’s reasonable discretion.

     “Cash Equivalents” means (a) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case maturing within one year or less from the date of creation thereof, (b) commercial paper maturing within one year from the date of creation thereof rated in the highest grade by Standard and Poor’s Ratings Group (“S&P”) and by Moody’s Investors Service, Inc. (“Moody’s”), (c) deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United States, Canada or England or any other bank or trust company which is organized under the laws of the United States, Canada or England or any state or province thereof, has capital, surplus and undivided profits aggregating at least $100,000,000.00 (as of the date of such Lender’s or bank or trust company’s most recent financial reports) and has a short term deposit rating of not lower than A2 or P2, as such rating is set forth from time to time by S&P or Moody’s, respectively, and (d) deposits in money market funds investing exclusively in investments described in clauses (a) through (c) of this definition.

     “CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, state and local analogs, and all rules and regulations and requirements thereunder in each case as now or hereafter in effect.

     “Change of Control” means any of the following: (a) any acquisition pursuant to which any Person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act) (other than the Preferred Shareholders) has become the direct or indirect beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than 35% of the Voting Stock of Brigham Exploration; (b) any transaction or acquisition pursuant to which any one or more of the Preferred Shareholders has or have become the direct or indirect beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than 47% of the Voting Stock of Brigham Exploration; (c) Brigham Exploration is merged with or into or consolidated with another Person except as otherwise permitted by Section 6.04; (d) Brigham Exploration, either individually or in conjunction with one or more of its Subsidiaries, sells, conveys, transfers or leases, or its Subsidiaries sell, convey, transfer or lease, all or substantially all of the assets of Brigham Exploration and its Subsidiaries, taken as a whole (either in one transaction or a series of related transactions), including Capital Stock of its Subsidiaries, to any Person except as otherwise permitted by Section 6.04; (e) the first day on which a majority of the individuals who

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constitute the Board of Directors of Brigham Exploration are not Continuing Directors or (f) Brigham Exploration shall cease to own, directly or indirectly, 100% of the Capital Stock of the Borrower.

     “Closing Date” means the date on which the conditions set forth in Section 3.01 are satisfied, which date shall not be later than January 21, 2005.

     “Code” means the Internal Revenue Code of 1986, as amended, and any successor statute.

     “Collateral” means Property of the Credit Parties, now owned or hereafter acquired, that is subject to any Lien in favor of the Administrative Agent, the Lenders, the Issuing Bank or any Swap Counterparty to secure, directly or indirectly, the Obligations of the Credit Parties under the Loan Documents.

     “Commitment” means, for any Lender, the amount set opposite such Lender’s name on Schedule 1 as its “Commitment”, or if such Lender has entered into any Assignment and Acceptance, as set forth for such Lender as its Commitment in the Register maintained by the Administrative Agent pursuant to Section 10.06(c), as such amount may be increased pursuant to Section 2.01(c) or reduced or terminated pursuant to Section 2.04 or Article VII or otherwise under this Agreement. The original aggregate amount of the Commitments is $100,000,000.

     “Commitment Termination Date” means the earlier of (a) the Maturity Date and (b) the earlier termination in whole of the Commitments pursuant to Section 2.04 or Article VII.

     “Compliance Certificate” means a compliance certificate in the form of the attached Exhibit B signed by a Responsible Officer of Brigham Exploration.

     “Consolidated Net Income” means, with respect to Brigham Exploration and its consolidated Subsidiaries, for any period, the aggregate of the net income (or loss) of Brigham Exploration and its consolidated Subsidiaries after allowances for taxes for such period as determined on a consolidated basis in accordance with GAAP; provided, that there shall be excluded from the calculation of such net income (to the extent otherwise included therein) the following: (a) the net income of any Person in which Brigham Exploration or any consolidated Subsidiary has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of Brigham Exploration and its consolidated Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in such period by such other Person to Brigham Exploration or to a consolidated Subsidiary, as the case may be; (b) the net income (but not loss) of any consolidated Subsidiary to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by that consolidated Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument or Legal Requirement applicable to such consolidated Subsidiary, or is otherwise restricted or prohibited in each case determined in accordance with GAAP; (c) the net income (or loss) of any Person acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; (d) any extraordinary gains or losses, including gains or losses attributable to Property sales not in the ordinary course of business; and (e) the cumulative effect

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of a change in accounting principles and any gains or losses attributable to writeups or writedowns of assets.

     “Continuing Director” means an individual who (a) is a member of the full Board of Directors of Brigham Exploration and (b) either (i) was a member of the Board of Directors of Brigham Exploration on the Closing Date or (ii) whose nomination for election or election to the Board of Directors of Brigham Exploration was approved by vote of at least two-thirds of the directors then still in office who were either directors on the Closing Date or whose election or nomination for election was previously so approved.

     “Controlled Group” means all members of a controlled group of corporations and all businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code.

     “Convert,” “Conversion,” and “Converted” each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.03(b).

     “Credit Parties” means the Borrower and the Guarantors.

     “Debt,” for any Person, means without duplication:

     (a) indebtedness of such Person for borrowed money;

     (b) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

     (c) obligations of such Person (whether contingent or otherwise) in respect to letters of credit, bankers’ acceptances, surety or other bonds and similar instruments, and agreements relating to the issuance of letters of credit or acceptance financing;

     (d) obligations of such Person to pay the deferred purchase price of Property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices and accrued current liabilities incurred in the ordinary course of business);

     (e) all obligations of such Person under Capital Leases;

     (f) all indebtedness created or arising under any conditional-sale or other title-retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property);

     (g) net obligations of such Person under any Interest Hedge Agreement or Hydrocarbon Hedge Agreement;

     (h) obligations of such Person under any Advance Payment Contract;

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     (i) obligations of such Person owing in respect of redeemable preferred stock of such Person;

     (j) any obligations in connection with any volumetric or production payments;

     (k) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) of such Person to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (j) above; and

     (l) indebtedness or obligations of others of the kinds referred to in clauses (a) through (k) secured by any Lien on or in respect of any Property of such Person; provided that if such Person has not assumed or otherwise become liable in respect of such Debt, the amount of Debt of such Person shall be limited to the lesser of (a) the fair market value of the Property serving such indebtedness or obligations and (b) the outstanding amount of such indebtedness or obligations.

     “Default” means (a) an Event of Default or (b) any event or condition which with notice or lapse of time or both would become an Event of Default.

     “Dollars” and “$” means lawful money of the United States of America.

     “Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” opposite its name on Schedule 1 or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.

     “EBITDA” means, without duplication, for Brigham Exploration and its consolidated Subsidiaries for any period, (a) Consolidated Net Income for such period plus (b) to the extent deducted in determining Consolidated Net Income for such period, Interest Expense, taxes, depreciation, depletion, amortization and other non-cash charges for such period, minus (c) to the extent added in determining Consolidated Net Income for such period, all non-cash income during such period, in each case determined in accordance with GAAP and without duplication of amounts.

     “Eligible Assignee” means (a) any Lender or any Affiliate of any Lender and (b) any commercial bank or other financial institution approved by (i) the Administrative Agent in its reasonable discretion and (ii) provided no Default or Event of Default has occurred and is continuing, the Borrower (which consent shall not be unreasonably withheld or delayed).

     “Engineering Report” means either an Independent Engineering Report or an Internal Engineering Report.

     “Environment” or “Environmental” shall have the meanings set forth in 43 U.S.C. 9601(8) (1988).

     “Environmental Claim” means any third party (including governmental agencies and employees) action, lawsuit, claim, demand, regulatory action or proceeding, order, decree,

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consent agreement or notice of potential or actual responsibility or violation (including claims or proceedings under the Occupational Safety and Health Acts or similar laws or requirements relating to health or safety of employees) which seeks to impose liability under any Environmental Law.

     “Environmental Law” means, as to any Credit Party, all Legal Requirements or common law theories applicable to any Credit Party arising from, relating to, or in connection with the Environment, including without limitation CERCLA, relating to (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or restoration of the air, surface water, groundwater, land surface or subsurface strata, or other natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling, reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants, contaminants, hazardous, medical infections, or toxic substances, materials or wastes; or (d) the manufacture, processing, handling, transportation, distribution in commerce, use, storage or disposal of hazardous or toxic substances, materials or wastes.

     “Environmental Permit” means any permit, license, order, approval, registration or other authorization under Environmental Law.

     “Equity Interest” means with respect to any Person, any shares, interests, participation, or other equivalents (however designated) of corporate stock, membership interests or partnership interests (or any other ownership interests) of such Person.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

     “Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Federal Reserve Board (or any successor), as in effect from time to time.

     “Eurodollar Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Eurodollar Lending Office” opposite its name on Schedule 1 (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.

     “Eurodollar Rate” means, for the Interest Period for each Eurodollar Rate Advance comprising the same Borrowing, the interest rate per annum (rounded upward to the nearest whole multiple of 1/100 of 1% per annum) set forth on the applicable Telerate Page as the London Interbank Offered Rate, for deposits in Dollars at 11:00 a.m. (London, England time) two Business Days before the first day of such Interest Period and for a period equal to such Interest Period; provided that, if no such quotation appears on the applicable Telerate Page, the Eurodollar Rate shall be an interest rate per annum equal to the rate per annum at which deposits in Dollars are offered by the principal office of Société Générale in London, England to prime banks in the London interbank market at 11:00 a.m. (London, England time) two Business Days before the first day of such Interest Period in an amount substantially equal to the Eurodollar Rate Advance to be maintained by the Lender that is the Administrative Agent in respect of such Borrowing and for a period equal to such Interest Period.

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     “Eurodollar Rate Advance” means an Advance which bears interest as provided in Section 2.09(b).

     “Eurodollar Rate Reserve Percentage” of any Lender for the Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental, or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.

     “Event of Default” has the meaning specified in Section 7.01.

     “Excepted Liens” means (a) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (b) Liens in connection with workmen’s compensation, unemployment insurance or other social security, old age pension or public liability obligations not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (c) operators’, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, workmen’s, materialmen’s, construction or other like Liens arising in the ordinary course of business or incident to the exploration, development, operation and maintenance of Properties or customary landlord’s liens, each of which is in respect of obligations that have not been outstanding more than 90 days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been maintained in accordance with GAAP; (d) any Liens reserved in leases, farmout agreements, exploration agreements, operating agreements or participation agreements for rent, or royalties, or other production proceeds and for compliance with the terms of such agreements or leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held or materially impair the value of such Property subject thereto; (e) encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Property or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any rights of way or other Property for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in the title of any rights of way or other Property which in the aggregate do not materially impair the use of such rights of way or other Property for the purposes of which such rights of way and other Property are held or materially impair the value of such Property subject thereto; (f) deposits of cash or securities to secure the performance of bids, trade contracts, leases, statutory obligations and other obligations of a like nature incurred in the ordinary course of business; and (g) minor defects in the chain of title to the Properties that are customarily accepted in the oil and gas industry, provided, however, that none of such defects interfere with the ordinary conduct of the business of any of the Credit Parties or materially detract from the value or use of the Property to which such defects apply.

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     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Existing Letters of Credit” means the letters of credit described on Schedule 2.07.

     “Existing Mortgages” means the collective reference to every Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing Statement from the Borrower to the Trustee named therein and the Administrative Agent (or any successor thereto), covering the assets of the Borrower located in the continental United States, as amended prior to the Closing Date.

     “Expiration Date” means, with respect to any Letter of Credit, the date on which such Letter of Credit will expire or terminate in accordance with its terms.

     “Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for any such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

     “Federal Reserve Board” means the Board of Governors of the Federal Reserve System or any of its successors.

     “Financial Letter of Credit” means a Letter of Credit qualifying as a “financial standby letter of credit” under 12 CFR Part 3, Appendix A, Section 4(a)(8) or any successor U.S. Comptroller of the Currency regulation and issued by an Issuing Bank under the terms of this Agreement.

     “Financial Statements” means the audited consolidated balance sheet of Brigham Exploration and its consolidated Subsidiaries as at December 31, 2003 and the related consolidated statement of income, stockholders’ equity and cash flow of Brigham Exploration and its consolidated Subsidiaries for the fiscal year ended on such date.

     “GAAP” means United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the requirements of Section 1.03.

     “Governmental Authority” means, as to any Person in connection with any subject, any foreign, national, state or provincial governmental authority, or any political subdivision of any state thereof, or any agency, department, commission, board, authority or instrumentality, bureau or court, in each case having jurisdiction over such Person or such Person’s Property in connection with such subject.

     “Guarantor” means Brigham Exploration, the General Partner, and each Subsidiary of the Borrower.

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     “Hazardous Substance” means the substances identified as such pursuant to CERCLA and those regulated under any other Environmental Law, including without limitation pollutants, contaminants, petroleum, petroleum products, radionuclides, radioactive materials, and medical and infectious waste.

     “Hazardous Waste” means the substances regulated as such pursuant to any Environmental Law.

     “Hydrocarbon Hedge Agreement” means a swap, collar, floor, cap, option, forward sale or purchase or other contract (excluding sales contracts with fixed or floating prices for Hydrocarbons sold) that is intended to reduce or eliminate the risk of fluctuations in the price of Hydrocarbons.

     “Hydrocarbon Interests” means (a) all oil and gas and/or oil, gas and mineral leases and leasehold interests, fee mineral interests, term mineral interests, subleases, farmouts, royalties, overriding royalties, net profits interests, production payments and similar interests or estates including any reversionary or carried interests relating to any of the foregoing and interests under any exploration agreements, operating agreements and participation agreements, and (b) all production units and drilling and spacing units (and the Properties covered thereby) which may affect all or any portion of such interests including those units and any units created by agreement or designation or under orders, regulations, rules or other official acts of any Federal, state or other governmental body or agency having jurisdiction.

     “Hydrocarbons” means oil, gas, coal seam gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons and all products, by-products, and other substances of value derived, refined or separated therefrom.

     “Incremental Assumption Agreement” shall mean an Incremental Assumption Agreement in form and substance reasonably satisfactory to the Administrative Agent, among the Borrower, the Administrative Agent and one or more Incremental Lenders.

     “Incremental Commitment” shall mean the commitment of any Lender, established pursuant to Section 2.01(c), to make Advances to the Borrower.

     “Incremental Commitment Amount” shall mean, at any time, the excess, if any, of (a) $100,000,000 over (b) the aggregate amount of all Incremental Commitments established prior to such time pursuant to Section 2.01(c).

     “Independent Engineer” means Cawley, Gillespie & Associates or any other engineering firm reasonably acceptable to either the Administrative Agent or the Majority Lenders.

     “Independent Engineering Report” means a report, in form and substance satisfactory to the Administrative Agent and each of the Lenders, prepared by an Independent Engineer, addressed to the Administrative Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or its Subsidiaries (or to be acquired by the Borrower or any of its Subsidiaries, as applicable) which are or are to be included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and

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Gas Properties, (c) contain an estimate of the associated capital expenditures and net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions specified by the Administrative Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent or any Lender.

     “Intercreditor and Subordination Agreement” means that certain Second Amended and Restated Intercreditor and Subordination Agreement, which shall be in a form acceptable to the Administrative Agent and the Lenders, dated as of the Closing Date among the Administrative Agent, certain of the Credit Parties, and The Royal Bank of Scotland plc, as agent for the lenders party to the Subordinated Credit Agreement.

     “Interest Coverage Ratio” means, for Brigham Exploration and its consolidated Subsidiaries, as of the end of any fiscal quarter, the ratio of (a) EBITDA calculated for the four fiscal quarters then ended, to (b) Interest Expense for such period.

     “Interest Expense” means, for Brigham Exploration and its consolidated Subsidiaries for any period, total interest, letter of credit fees, and other fees and expenses incurred in connection with any Debt for such period, whether paid or accrued, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Interest Hedge Agreements, all as determined in conformity with GAAP.

     “Interest Hedge Agreement” means an interest hedge, rate swap, cap or collar, or similar arrangement between the Borrower and one or more financial institutions providing for the exchange of nominal interest obligations between the Borrower and such financial institution.

     “Interest Period” means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into a Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.03 and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.03. The duration of each such Interest Period shall be one, two, three, or six months, in each case as the Borrower may, upon notice received by the Administrative Agent not later than 12:00 p.m. (New York time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:

     (a) the Borrower may not select any Interest Period for any Advance which ends after the Maturity Date;

     (b) Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration;

     (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that if such extension would cause the last day of such

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Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and

     (d) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month.

     “Internal Engineering Report” means a report, in form and substance reasonably satisfactory to the Administrative Agent and each Lender, prepared by the Borrower and certified by a Responsible Officer of the General Partner, addressed to the Administrative Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or any of its Subsidiaries (or to be acquired by the Borrower or any of its Subsidiaries, as applicable) which are or are to be included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the associated capital expenditures and net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions specified by the Administrative Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent or any Lender.

     “Investment” means any investment, made directly or indirectly, in any Person, whether by acquisition of Equity Interests, indebtedness or other obligations or securities or by loan, advance, capital contribution or otherwise.

     “Issuing Lender” means Société Générale, and any successor issuing bank pursuant to Section 9.06.

     “Legal Requirement” means, as to any Person, any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or official interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, including, but not limited to, Regulations D, T, U, and X, which is applicable to such Person.

     “Lender” means each Lender that has a Commitment hereunder or is the holder of an Advance.

     “Letter of Credit” means, individually, any standby letter of credit issued by the Issuing Lender for the account of the Borrower in connection with the Commitments and which is subject to this Agreement, and “Letters of Credit” means all such letters of credit collectively.

     “Letter of Credit Application” means the Issuing Lender’s standard form letter of credit application for standby letters of credit that has been executed by the Borrower and accepted by the Issuing Lender in connection with the issuance of a Letter of Credit.

     “Letter of Credit Documents” means all Letters of Credit, Letter of Credit Applications, and any other agreements, documents, and instruments entered into in connection with or relating thereto.

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     “Letter of Credit Exposure” means, at any time, the sum of (a) the aggregate undrawn maximum face amount of each Letter of Credit at such time plus (b) the aggregate unpaid amount of all Reimbursement Obligations at such time.

     “Letter of Credit Obligations” means any obligations of the Borrower under this Agreement in connection with the Letters of Credit, including the Reimbursement Obligations.

     “Lien” means any mortgage, lien, pledge, assignment, charge, deed of trust, security interest, hypothecation, preference, deposit arrangement or encumbrance (or other type of arrangement having the practical effect of the foregoing) to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law, or otherwise (including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, synthetic lease, Capital Lease, or other title retention agreement).

     “Limited Partners” means Brigham Holdings I, LLC, a Nevada limited liability company, and Brigham Holdings II, LLC, a Nevada limited liability company.

     “Loan Documents” means this Agreement, the Notes, the Administrative Agent’s Fee Letter, the Letter of Credit Documents, the Security Instruments, the Intercreditor and Subordination Agreement, any Interest Hedge Agreements with a Swap Counterparty, any Hydrocarbon Hedge Agreements with a Swap Counterparty, and each other agreement, instrument, or document executed by any Credit Party or any of their officers at any time in connection with this Agreement.

     “Majority Lenders” means, at any time, the Administrative Agent and Lenders holding at least 66-2/3% of the then aggregate unpaid principal amount of the Notes held by the Lenders and the Letter of Credit Exposure of the Lenders at such time; provided that, if no Advances or Letter of Credit Exposure is then outstanding, “Majority Lenders” shall mean the Administrative Agent and Lenders having at least 66-2/3% of the aggregate amount of the Commitments at such time.

     “Material Adverse Change” means (a) a material adverse change in the business, Property (including the Oil and Gas Properties), assets, liabilities or financial condition of the Borrower and its Subsidiaries, taken as a whole, (b) a material adverse effect on any Credit Party’s ability to perform its obligations under this Agreement, any Note, or any other Loan Document and (c) a material adverse effect on the validity or enforceability against any Credit Party of any of the Loan Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder.

     “Maturity Date” means the earlier of (a) March 21, 2009 or (b) 60 days prior to Subordinated Debt Maturity Date (if any Subordinated Debt remains outstanding on such date).

     “Maximum Rate” means the maximum nonusurious interest rate under applicable law (determined under such laws after giving effect to any items which are required by such laws to be construed as interest in making such determination, including without limitation if required by such laws, certain fees and other costs).

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     “Mortgage Amendments” means each of the mortgage amendments or deed of trust amendments to be entered into on or before the Closing Date to amend the Existing Mortgages in substantially the form of the attached Exhibit F.

     “Mortgages” means, collectively, each Mortgage Amendment or any other mortgage or deed of trust executed by any one or more of the Borrower and its Subsidiaries in favor of the Administrative Agent for the ratable benefit of the Administrative Agent, the Issuing Lender, the Lenders, and any Swap Counterparty, as the same may be amended, modified, restated or supplemented from time-to-time, and “Mortgages” shall mean all of such Mortgages collectively.

     “Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA.

     “Non-Proven Reserves” means “Non-Proved Reserves” as defined in the Definitions for Oil and Gas Reserves promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.

     “Note” means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of the attached Exhibit E, evidencing indebtedness of the Borrower to such Lender resulting from Advances owing to such Lender.

     “Notice of Borrowing” means a notice of borrowing in the form of the attached Exhibit C signed by a Responsible Officer of the General Partner.

     “Notice of Conversion or Continuation” means a notice of conversion or continuation in the form of the attached Exhibit D signed by a Responsible Officer of the General Partner.

     “Obligations” means (a) all principal, interest, fees, reimbursements, indemnifications, and other amounts payable by any Credit Party to the Administrative Agent, the Issuing Lender or the Lenders under the Loan Documents, including without limitation, the Letter of Credit Obligations and (b) all obligations of any Credit Party owing to any Swap Counterparty under any Interest Hedge Agreement or Hydrocarbon Hedge Agreement, but excluding any transactions or confirmations entered into after such Swap Counterparty ceases to be a Lender or an Affiliate of a Lender.

     “Oil and Gas Properties” means (a) all Hydrocarbon Interests to which Proven Reserves are properly attributed; (b) all Hydrocarbons in and under and which may be produced, saved, processed or attributable to such Hydrocarbon Interests, including all oil in tanks; (c) all accounts attributable to such Hydrocarbon Interests (including accounts resulting from the sale of Hydrocarbons attributable to such Hydrocarbon Interests at the wellhead); (d) all operating agreements, contracts, agreements, and other contract rights related to such Hydrocarbon Interests and to the production, sale, purchase, exchange, or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all real and personal Property used directly for or held for use directly for the operation, working, development, exploration, or production of such Hydrocarbon Interests, including all oil and gas gathering, treating, storage, processing, and handling equipment and other assets; and (f) all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing.

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     “Partners” means the General Partner and the Limited Partners.

     “Partnership Agreement” means the Agreement of Limited Partnership of the Borrower among the Partners dated as of December 30, 1997, as heretofore or hereafter amended, supplemented or restated from time to time.

     “PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

     “Performance Letter of Credit” means a Letter of Credit qualifying as a “performance-based standby letter of credit” under 12 CFR Part 3, Appendix A, Section 3(b)(2)(i) or any successor U.S. Comptroller of the Currency regulation and issued by an Issuing Bank under the terms of this Agreement.

     “Permit” means any approval, certificate of occupancy, consent, waiver, exemption, variance, franchise, order, permit, authorization, right or license of or from any Governmental Authority, including without limitation, an Environmental Permit.

     “Permitted Liens” has the meaning ascribed to such term in Section 6.01.

     “Person” means an individual, partnership, corporation (including a business trust), joint stock company, limited liability corporation or company, limited liability partnership, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof or any trustee, receiver, custodian or similar official.

     “Plan” means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Borrower or any member of the Controlled Group and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.

     “Pledge Agreements” means each of the Second Amended and Restated Pledge Agreements, in substantially the form of the attached Exhibit G, executed by each of Brigham Exploration, the General Partner and the Borrower, as the same may be amended, modified, restated or supplemented from time to time.

     “Preferred Shareholders” means each of the Persons listed on Schedule 1.01 who hold Capital Stock in Brigham Exploration, together with its successors, assigns and transferees of its shares of Capital Stock of Brigham Exploration that are Affiliated Funds of such Preferred Shareholders.

     “Preferred Stock” means the mandatorily redeemable Series A Preferred Stock, $.01 par value, issued by Brigham Exploration prior to the Closing Date.

     “Property” of any Person means any property or assets (whether real, personal, or mixed, tangible or intangible) of such Person.

     “Pro Rata Share” means, with respect to any Lender, either (a) the ratio (expressed as a percentage) of such Lender’s Commitment at such time to the aggregate Commitments at such time or (b) if the Commitments have been terminated, the ratio (expressed as a percentage) of

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such Lender’s aggregate outstanding Advances and Letter of Credit Exposure at such time to the aggregate outstanding Advances and Letter of Credit Exposure of all the Lenders at such time.

     “Proven Reserves” means, at any particular time, the estimated quantities of Hydrocarbons which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs attributable to Oil and Gas Properties under then existing economic and operating conditions (i.e., prices and costs as of the date the estimate is made).

     “Register” has the meaning set forth in paragraph (c) of Section 10.06.

     “Regulations D, T, U, and X” mean Regulations D, T, U, and X of the Federal Reserve Board, as the same are from time to time in effect, and all official rulings and interpretations thereunder or thereof.

     “Reimbursement Obligations” means all of the obligations of the Borrower to reimburse the Issuing Lender for amounts paid by the Issuing Lender under Letters of Credit as established by the Letter of Credit Applications and Section 2.07(d).

     “Release” shall have the meaning set forth in CERCLA or under any other Environmental Law.

     “Response” shall have the meaning set forth in CERCLA or under any other Environmental Law.

     “Responsible Officer” means (a) with respect to any Person that is a corporation, such Person’s Chief Executive Officer, President, Executive Vice President, Chief Financial Officer, or Vice President—Controller (b) with respect to any Person that is a limited liability company, a manager (or such Person’s Chief Executive Officer, President, Executive Vice President, Chief Financial Officer, or Vice President—Controller, if any) or the Responsible Officer of such Person’s managing member or manager, and (c) with respect to any Person that is a general partnership or a limited liability partnership, the Responsible Officer of such Person’s general partner or partners.

     “Restricted Payment” means, with respect to any Person, any direct or indirect dividend or distribution (whether in cash, securities or other property) or any direct or indirect payment of any kind or character (whether in cash, securities or other property) in consideration for or otherwise in connection with any retirement, purchase, redemption or other acquisition of any Equity Interest of such Person, or any options, warrants or rights to purchase or acquire any such Equity Interest of such Person; provided that the term “Restricted Payment” shall not include any dividend or distribution payable solely in Equity Interests of Brigham Exploration or warrants, options or other rights to purchase such Equity Interests.

     “SEC” means the U.S. Securities and Exchange Commission.

     “Security Instruments” means, collectively, (a) the Mortgages, (b) the Pledge Agreements, (c) each other agreement, instrument or document executed at any time in

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connection with the Pledge Agreements and the Mortgages, and (d) each other agreement, instrument or document executed at any time in connection with securing the Obligations.

     “Solvent” means, with respect to any Person as of the date of any determination, that on such date (a) the fair value of the Property of such Person (both at fair valuation and at present fair saleable value) is greater than the total liabilities, including contingent liabilities, of such Person, (b) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations, and other commitments as they mature in the normal course of business, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s Property would constitute unreasonably small capital after giving due consideration to current and anticipated future capital requirements and current and anticipated future business conduct and the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, such liabilities shall be computed at the amount that, in light of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

     “Subordinated Credit Agreement” means the Subordinated Second Amended and Restated Credit Agreement dated as of the date hereof among the Borrower, the lenders party thereto, and The Royal Bank of Scotland plc, as administrative agent for such lenders.

     “Subordinated Debt” means the “Obligations” as defined in the Subordinated Credit Agreement.

     “Subordinated Debt Maturity Date” means the “Maturity Date” as defined in the Subordinated Credit Agreement.

     “Subordinated Loan Documents” means the Subordinated Credit Agreement, the promissory notes executed and delivered pursuant to the Subordinated Credit Agreement, all agreements, instruments, or documents executed at any time in connection with securing the Subordinated Debt, and each other agreement, instrument, or document executed by any Credit Party or any of their Responsible Officers in connection with the Subordinated Credit Agreement.

     “Subsidiary” of a Person means any corporation or other entity of which more than 50% of the outstanding Equity Interests having ordinary voting power under ordinary circumstances to elect a majority of the board of directors or similar governing body of such corporation or other entity (irrespective of whether at such time Equity Interests of any other class or classes of such corporation or other entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person. Unless otherwise indicated herein, each reference to the term “Subsidiary” shall mean a Subsidiary of the Borrower.

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     “Swap Counterparty” means any Lender (or Affiliate of a Lender) that is party to a Hydrocarbon Hedge Agreement or Interest Hedge Agreement with the Borrower or any of its Subsidiaries.

     “Termination Event” means (a) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower or any of its Affiliates from a Plan during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

     “Type” has the meaning set forth in Section 1.04.

     “Unused Commitment Amount” means, with respect to a Lender at any time, the lesser of (a) such Lender’s Commitment at such time and (b) such Lender’s Pro Rata Share of the Borrowing Base then in effect at such time minus, in each case the sum of (i) the aggregate outstanding principal amount of all Advances owed to such Lender at such time plus (ii) such Lender’s Pro Rata Share of the aggregate Letter of Credit Exposure at such time.

     “Utilization Percentage” means, at any time, the ratio (expressed as a percentage) at such time of (a) the sum of the aggregate outstanding principal amount of the Advances and the aggregate Letter of Credit Exposure at such time to (b) the lesser of (i) the Commitments or (ii) the Borrowing Base, as applicable, in effect at such time.

     “Voting Stock” means, with respect to any Person, securities of any class or classes of Capital Stock or other interests (including partnership interests) in such Person entitling the holders thereof (whether at all times or at the time that such class of Capital Stock has voting power by reason of the happening of any contingency) to vote in the election of members of the board of directors or comparable body of such Person.

     Section 1.02 Computation of Time Periods. In this Agreement, with respect to the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”.

     Section 1.03 Accounting Terms; Changes in GAAP. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof) be prepared, in accordance with GAAP applied on a basis consistent with those used in the preparation of the Financial Statements. In addition, all calculations and defined accounting terms used herein shall, unless expressly provided otherwise, when referring to any Person, refer to such Person on a consolidated basis and mean such Person and its consolidated subsidiaries.

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     Section 1.04 Types of Advances. Advances are distinguished by “Type.” The “Type” of an Advance refers to the determination whether such Advance is a Eurodollar Rate Advance or Base Rate Advance.

     Section 1.05 Miscellaneous. Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time, unless otherwise specified. The words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “including” means “including, without limitation,”. Paragraph headings have been inserted in this Agreement as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Agreement and shall not be used in the interpretation of any provision of this Agreement. All Exhibits and Schedules attached to this Agreement are a part hereof for all purposes. Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.

ARTICLE II

CREDIT FACILITIES

     Section 2.01 Revolving Credit Facility.

     (a) Advances. Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Advances to the Borrower from time to time on any Business Day during the period from the date of this Agreement until the Commitment Termination Date in an amount for each Lender not to exceed such Lender’s Unused Commitment Amount. Each Borrowing shall, in the case of Borrowings consisting of Base Rate Advances, be in an aggregate amount not less than $1,000,000 and in integral multiples of $500,000 in excess thereof, and in the case of Borrowings consisting of Eurodollar Rate Advances, be in an aggregate amount not less than $2,000,000 and in integral multiples of $1,000,000 in excess thereof, and in each case shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender’s Commitment, and subject to the terms of this Agreement, the Borrower may from time to time borrow, prepay, and reborrow Advances.

     (b) Notes. The indebtedness of the Borrower to each Lender resulting from the Advances owing to such Lender shall be evidenced by a Note of the Borrower payable to the order of such Lender in an amount equal to such Lender’s Commitment.

     (c) Increase in Commitments.

          (i) The Borrower may, by written notice to the Administrative Agent from time to time after the Closing Date, request that the aggregate Commitments be increased by an amount not to exceed the Incremental Commitment Amount at such time by delivering a request

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to the Administrative Agent, who shall deliver a copy thereof to each Lender. Such notice shall set forth (A) the amount of the requested increase in the aggregate Commitments (which shall be in minimum increments of U.S.$1,000,000 and a minimum amount of U.S.$5,000,000 or equal to the remaining Incremental Commitment Amount), (B) the date on which such increase is requested to become effective (which shall not be less than 10 Business Days nor more than 60 days after the date of such notice and which, in any event, must be on or prior to the Maturity Date), and (C) the Lenders who have agreed to increase their Commitment by all or a portion of the offered amount (each Lender so agreeing being an “Increasing Lender”) or one or more banks or other entities who have agreed to extend the Commitment by all or a portion of the offered amount (any such bank or other entity referred to in this clause (c) being called an “Augmenting Lender” and, together with the Increasing Lenders, the “Incremental Lenders”) in an aggregate amount equal to the unsubscribed amount; provided that each Augmenting Lender shall be subject to the approval of the Administrative Agent and the Issuing Lender (which approvals shall not be unreasonably withheld or delayed). Any increase in the aggregate Commitments may be made in an amount which is less than the increase requested by the Borrower if the Borrower is unable to arrange for, or chooses not to arrange for, Incremental Lenders.

          (ii) The Borrower and each Incremental Lender shall execute and deliver to the Administrative Agent an Incremental Assumption Agreement and such other documentation as the Administrative Agent shall reasonably specify to evidence the Incremental Commitment of such Incremental Lender or its status as a Lender hereunder. The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Incremental Assumption Agreement. Each of the parties hereto hereby agrees that, upon the effectiveness of any Incremental Assumption Agreement, this Agreement shall be deemed amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Incremental Commitment evidenced thereby.

          (iii) Each of the parties hereto hereby agrees that the Administrative Agent may take any and all actions as may be reasonably necessary to ensure that, after giving effect to any increase in the aggregate Commitments pursuant to this Section 2.01(c), the outstanding Advances (if any) are held by the Lenders in accordance with their new Pro Rata Shares. This may be accomplished at the discretion of the Administrative Agent (A) by requiring the outstanding Advances to be prepaid with the proceeds of a new Borrowing, (B) by causing Non-Increasing Lenders to assign portions of their outstanding Advances to Incremental Lenders, (C) by permitting the Borrowings outstanding at the time of any increase in the aggregate Commitments pursuant to this Section 2.01(c) to remain outstanding until the last days of the respective Interest Periods therefor, even though the Lenders would hold such Borrowings other than in accordance with their new Pro Rata Shares, or (D) by any combination of the foregoing. Any prepayment or assignment described in this paragraph (c) shall be subject to indemnification by the Borrowers pursuant to Section 2.12, but otherwise without premium or penalty.

          (iv) Notwithstanding the foregoing, no increase in the aggregate Commitments (or in the Commitment of any Lender) or addition of a new Lender shall become effective under this Section 2.01(c) unless, (A) on the date of such increase, the conditions set forth in Section 3.02 shall be satisfied and the Administrative Agent shall have received a certificate to that effect dated such date and executed by a Responsible Officer of the Borrower and (B) the

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Administrative Agent shall have received (with sufficient copies for each of the Lenders) an officer’s certificate consistent with those delivered on the Closing Date under clauses (a)(ix) through (xiv) of Section 3.01, which certificate shall include a certification from a Responsible Officer that the resolutions delivered on the Closing Date remain in full force and effect and authorize the applicable increase in the aggregate commitments.

     Section 2.02 Borrowing Base.

     (a) Borrowing Base. The Borrowing Base as of the Closing Date has been set by the Administrative Agent and the Lenders and acknowledged by the Borrower as $68,500,000. Such Borrowing Base shall remain in effect until the next redetermination made pursuant to this Section 2.02. The Borrowing Base shall be determined in accordance with the standards set forth in Section 2.02(d) and is subject to periodic redetermination pursuant to Sections 2.02(b) and 2.02(c).

     (b) Calculation of Borrowing Base.

          (i) The Borrower shall deliver to the Administrative Agent and each of the Lenders on or before each February 15, beginning February 15, 2005, an Independent Engineering Report dated effective as of the immediately preceding December 31, and such other information as may be reasonably requested by any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base. Within 20 days after the Administrative Agent and the Lenders’ receipt of such Independent Engineering Report and other information, the Administrative Agent shall deliver to each Lender the Administrative Agent’s recommendation for the redetermined Borrowing Base. Within 20 days after the Lenders’ receipt of the Administrative Agent’s recommendation, each Lender shall advise the Administrative Agent whether or not such Lender agrees with the Administrative Agent’s recommendation and the Borrowing Base shall be redetermined upon the approval of Majority Lenders (or all of the Lenders in case of an increase in the Borrowing Base); provided, however, the failure of any Lender to give such notice within such period of time shall be deemed to constitute an acceptance of such redetermination. The Administrative Agent shall promptly notify the Borrower in writing of the amount of the Borrowing Base as so redetermined; provided, however that the failure to give such notice shall not affect the validity of any such redetermination.

          (ii) The Borrower shall deliver to the Administrative Agent and each Lender on or before each August 15, beginning August 15, 2005, an Internal Engineering Report dated effective as of the immediately preceding June 30, and such other information as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base. Within 20 days after the Administrative Agent and the Lenders’ receipt of such Internal Engineering Report and other information, the Administrative Agent shall deliver to each Lender the Administrative Agent’s recommendation for the redetermined Borrowing Base. Within 20 days after the Lenders’ receipt of the Administrative Agent’s recommendation, each Lender shall advise the Administrative Agent whether or not such Lender agrees with the Administrative Agent’s recommendation and the Borrowing Base shall be redetermined upon the approval of Majority Lenders (or all of the Lenders in case of an increase in the Borrowing Base); provided, however,

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the failure of any Lender to give such notice within such period of time shall be deemed to constitute an acceptance of such redetermination. The Administrative Agent shall promptly notify the Borrower in writing of the amount of the Borrowing Base as so redetermined.

          (iii) In the event that the Borrower does not furnish to the Administrative Agent and the Lenders the Independent Engineering Report, Internal Engineering Report or other information specified in clauses (i) and (ii) above by the date specified therein, the Administrative Agent and the Majority Lenders (or all the Lenders in case of an increase in the Borrowing Base) may nonetheless redetermine the Borrowing Base and redesignate the Borrowing Base from time-to-time thereafter in their sole discretion until the Administrative Agent and the Lenders receive the relevant Independent Engineering Report, Internal Engineering Report, as applicable, or other information whereupon the Administrative Agent and the Majority Lenders (or all the Lenders in case of an increase in the Borrowing Base) shall redetermine the Borrowing Base as otherwise specified in this Section 2.02. The failure of the Administrative Agent and the Lenders to redetermine the Borrowing Base and redesignate the Borrowing Base by the dates specified above shall not affect the validity of any redetermination and redesignation conducted from time-to-time hereafter.

          (iv) Each delivery of an Engineering Report by the Borrower to the Administrative Agent and the Lenders shall constitute a representation and warranty by the Borrower to the Administrative Agent and the Lenders that (A) the Borrower and its Subsidiaries, as applicable, own the Oil and Gas Properties specified therein free and clear of any Liens (except Permitted Liens), and (B) on and as of the date of such Engineering Report each Oil and Gas Property described as “proved developed” therein was developed for oil and gas, and the wells pertaining to such Oil and Gas Properties that are described therein as producing wells (“Wells”) were each producing oil and gas in paying quantities, except for Wells that were utilized as water or gas injection wells or as water disposal wells.

     (c) Interim Redetermination. In addition to the Borrowing Base redeterminations provided for in Section 2.02(b), (i) the Borrower may request one additional redetermination of the Borrowing Base during any 12-month period and (ii) the Majority Lenders may make one additional redetermination of the Borrowing Base during any 12-month period; provided, however, that any increase in the Borrowing Base resulting from such a redetermination shall require the consent of all the Lenders; and provided further, that such redeterminations shall be in the Lenders’ sole discretion and shall be based on such information as the Administrative Agent and the Lenders deem relevant (but in accordance with Section 2.02(d)). The parties requesting the redetermination shall give the other parties at least 10 days’ prior written notice that a redetermination of the Borrowing Base pursuant to this paragraph (c) is to be performed. In connection with any redetermination of the Borrowing Base under this Section 2.02(c), the Borrower shall provide the Administrative Agent and the Lenders with such information regarding the Credit Parties’ business (including, without limitation, its Oil and Gas Properties, the Proven Reserves, and production relating thereto) as the Administrative Agent or any Lender may request. In connection with such interim redeterminations, the Administrative Agent may request the Borrower to deliver an updated Internal Engineering Report or Independent Engineering Report. The Administrative Agent shall promptly notify the Borrower in writing of each redetermination of the Borrowing Base pursuant to this Section 2.02(c) and the amount of the Borrowing Base as so redetermined.

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     (d) Standards for Redetermination. Each redetermination of the Borrowing Base by the Administrative Agent and the Lenders pursuant to this Section 2.02 shall be made (i) in the sole discretion of the Administrative Agent and the Lenders (but in accordance with the other provisions of this Section 2.02(d)), (ii) in accordance with the Administrative Agent’s and the Lenders’ customary internal standards and practices for valuing and redetermining the value of Oil and Gas Properties in connection with reserve based oil and gas loan transactions, (iii) in conjunction with the most recent Independent Engineering Report or Internal Engineering Report, as applicable, or other information received by the Administrative Agent and the Lenders relating to the Proven Reserves of the Borrower and its Subsidiaries, and (iv) based upon the estimated value of the Proven Reserves owned by the Borrower and its Subsidiaries as determined by the Administrative Agent and the Lenders. In valuing and redetermining the Borrowing Base, the Administrative Agent and the Lenders may also consider the business, financial condition, and Debt obligations of the Borrower and its Subsidiaries and such other factors as the Administrative Agent and the Lenders customarily deem appropriate. In that regard, the Borrower acknowledges that the determination of the Borrowing Base contains an equity cushion (market value in excess of loan value), which is essential for the adequate protection of the Administrative Agent and the Lenders. No Proven Reserves shall be included or considered for inclusion in the Borrowing Base unless the Administrative Agent and the Lenders shall have received, at the Borrower’s expense, evidence of title satisfactory in form and substance to the Administrative Agent in accordance with Section 5.13. At all times after the Administrative Agent has given the Borrower notification of a redetermination of the Borrowing Base under this Section 2.02, the Borrowing Base shall be equal to the redetermined amount or such lesser amount designated by the Borrower and disclosed in writing to the Administrative Agent and the Lenders until the Borrowing Base is subsequently redetermined in accordance with this Section 2.02.

     Section 2.03 Method of Borrowing.

     (a) Notice. Each Borrowing shall be made pursuant to a Notice of Borrowing (or by telephone notice promptly confirmed in writing by a Notice of Borrowing), given not later than 12:00 p.m. (New York time) (i) on the third Business Day before the date of the proposed Borrowing, in the case of a Borrowing consisting of Eurodollar Rate Advances or (ii) on the Business Day of the proposed Borrowing, in the case of a Borrowing consisting of Base Rate Advances, by the Borrower to the Administrative Agent, which shall in turn give to each applicable Lender prompt notice of such proposed Borrowing by telecopier or telex. Each Notice of a Borrowing shall be given by telecopier or telex, confirmed immediately in writing, specifying the information required therein. In the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the Administrative Agent shall promptly notify each applicable Lender of the applicable interest rate under Section 2.09(b). Each applicable Lender shall, before 2:00 p.m. (New York time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 10.02, or such other location as the Administrative Agent may specify by notice to the Lenders, in same day funds, in the case of a Borrowing, such Lender’s Pro Rata Share of such Borrowing. After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent shall make such funds available to the Borrower at its account with the Administrative Agent.

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     (b) Conversions and Continuations. The Borrower may elect to Convert or continue any Borrowing by delivering an irrevocable Notice of Conversion or Continuation to the Administrative Agent at the Administrative Agent’s office no later than 12:00 p.m. (New York time) (i) on the date which is at least three Business Days in advance of the proposed Conversion or continuation date in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances and (ii) on the Business Day of the proposed Conversion in the case of a Conversion to a Borrowing comprised of Base Rate Advances. Each such Notice of Conversion or Continuation shall be in writing or by telex or telecopier confirmed immediately in writing specifying the information required therein. Promptly after receipt of a Notice of Conversion or Continuation under this Section, the Administrative Agent shall provide each Lender with a copy thereof and, in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances, notify each Lender of the applicable interest rate under Section 2.09(b).

     (c) Certain Limitations. Notwithstanding anything to the contrary contained in paragraphs (a) and (b) above:

          (i) at no time shall there be more than six Interest Periods applicable to outstanding Eurodollar Rate Advances and the Borrower may not select Eurodollar Rate Advances for any Borrowing at any time that a Default has occurred and is continuing;

          (ii) if any Lender shall, at least one Business Day before the date of any requested Borrowing, Conversion, or continuation, notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to perform its obligations under this Agreement to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances, the right of the Borrower to select Eurodollar Rate Advances from such Lender shall be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and the Advance made by such Lender in respect of such Borrowing, Conversion, or continuation shall be a Base Rate Advance;

          (iii) if the Administrative Agent is unable to determine the Eurodollar Rate for Eurodollar Rate Advances comprising any requested Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Base Rate Advance;

          (iv) if the Majority Lenders shall, at least one Business Day before the date of any requested Borrowing, notify the Administrative Agent that the Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing will not adequately reflect the cost to such Lenders of making or funding their respective Eurodollar Rate Advances, as the case may be, for such Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Base Rate Advance; and

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          (v) if the Borrower shall fail to select the duration or continuation of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01 and paragraph (b) above, the Administrative Agent shall forthwith so notify the Borrower and the Lenders and such Advances shall be made available to the Borrower on the date of such Borrowing as Base Rate Advances or, if an existing Advance, Convert into Base Rate Advances.

     (d) Notices Irrevocable. Each Notice of Borrowing and Notice of Conversion or Continuation shall be irrevocable and binding on the Borrower.

     (e) Administrative Agent Reliance. Unless the Administrative Agent shall have received notice from a Lender before the date of any Borrowing that such Lender shall not make available to the Administrative Agent such Lender’s Pro Rata Share of a Borrowing, the Administrative Agent may assume that such Lender has made its Pro Rata Share of such Borrowing available to the Administrative Agent on the date of such Borrowing in accordance with this Agreement and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made its Pro Rata Share of such Borrowing available to the Administrative Agent, such Lender and the Borrower severally agree to immediately repay to the Administrative Agent on demand such corresponding amount, together with interest on such amount, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable on such day to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate for such day. If such Lender shall repay to the Administrative Agent such corresponding amount and interest as provided above, such corresponding amount so repaid shall constitute such Lender’s Advance as part of such Borrowing for purposes of this Agreement even though not made on the same day as the other Advances comprising such Borrowing.

     (f) Lender Obligations Several. The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, to make its Advance on the date of such Borrowing. No Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

     Section 2.04 Reduction of the Commitments.

     (a) The Borrower shall have the right, upon at least five Business Days’ irrevocable notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portion of the Commitments; provided that each partial reduction shall be in the aggregate amount of $1,000,000 or in integral multiples of $1,000,000 in excess thereof.

     (b) Any reduction and termination of the Commitments pursuant to this Section 2.04 shall be applied ratably to each Lender’s Commitment and shall be permanent, with no obligation of the Lenders to reinstate such Commitments.

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     (c) Until the Commitment Termination Date, Borrower may, upon three (3) Business Days prior written notice to Administrative Agent, reduce the Borrowing Base from the then designated amount to any lesser amount, provided that the amount of any such reduction must be equal to $5,000,000 or any higher integral multiple of $1,000,000. Such reduced Borrowing Base shall be effective as of such third Business Day (or any later date as designated by Borrower in such written notice) and shall continue in effect until the next date as of which the Borrowing Base is redetermined. Any such reduction in the Borrowing Base shall remain in effect until the next redetermination made in accordance with Section 2.02.

     Section 2.05 Prepayment of Advances.

     (a) Optional. The Borrower may prepay the Advances, without premium or penalty, after giving by 12:00 p.m. (New York time) (i) in the case of Eurodollar Rate Advances, at least three Business Days’ or (ii) in the case of Base Rate Advances, on the same Business Day, irrevocable prior written notice to the Administrative Agent stating the proposed date and aggregate principal amount of such prepayment. If any such notice is given, the Borrower shall prepay the Advances in an aggregate principal amount equal to the amount specified in such notice, together with accrued interest to the date of such prepayment on the principal amount prepaid and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date; provided, however, that each partial prepayment with respect to: (A) any Eurodollar Rate Advances shall be applied to Eurodollar Rate Advances comprising part of the same Borrowing; and (B) any Type of Advances shall be made in $1,000,000 and in integral multiples of $500,000 in excess thereof (or the remaining aggregate principal balance outstanding). Full prepayments of any Borrowing are permitted without restriction of amounts.

     (b) Borrowing Base Deficiency. If a Borrowing Base Deficiency exists, then the Administrative Agent shall give the Borrower and the Lenders prompt written notice thereof. The Borrower shall, within ten days after receipt of written notice of such condition from the Administrative Agent elect by written notice to the Administrative Agent to take one or more of the following actions to remedy the Borrowing Base deficiency:

          (i) prepay Advances or, if the Advances have been repaid in full, make deposits into the Cash Collateral Account to provide cash collateral for the Letter of Credit Exposure in an aggregate amount equal to such deficiency within ten days after the Borrower’s written election;

          (ii) add additional Oil and Gas Properties acceptable to the Administrative Agent, in its sole discretion, to the Borrowing Base such that the Borrowing Base Deficiency is cured within 20 days after the Borrower’s written election; or

          (iii) pay the Borrowing Base Deficiency in six equal monthly installments for the prepayment of the Advances or, if the Advances have been repaid in full, make deposits into the Cash Collateral Account to provide cash collateral for the Letter of Credit Exposure such that the Borrowing Base Deficiency is eliminated in a period of six months, by irrevocably dedicating an amount of the monthly cash flow from the Borrower’s and its Subsidiaries’ Oil and Gas Properties to the prepayment of Advances or, if the Advances have been repaid in full, making

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deposits into the Cash Collateral Account to provide cash collateral for the Letter of Credit Exposure. Each prepayment pursuant to this Section 2.05(b) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date. Each prepayment under this Section 2.05(b) shall be applied to the Advances in accordance with Section 2.10.

     (c) Reduction of Commitments. On the date of each reduction of the aggregate Commitments pursuant to Section 2.04, the Borrower agrees to make a prepayment in respect of the outstanding amount of the Advances to the extent, if any, that the aggregate unpaid principal amount of all Advances plus the Letter of Credit Exposure exceeds the lesser of (A) the aggregate Commitments, as so reduced and (B) the Borrowing Base. Each prepayment pursuant to this Section 2.05(c) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date. Each prepayment under this Section 2.05(c) shall be applied to the Advances as provided in Section 2.10(a).

     (d) Illegality. If any Lender shall notify the Administrative Agent and the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for such Lender or its Eurodollar Lending Office to perform its obligations under this Agreement to maintain any Eurodollar Rate Advances of such Lender then outstanding hereunder, (i) the Borrower shall, no later than 12:00 p.m. (New York time) (A) if not prohibited by law, on the last day of the Interest Period for each outstanding Eurodollar Rate Advance made by such Lender or (B) if required by such notice, on the second Business Day following its receipt of such notice, prepay all of the Eurodollar Rate Advances made by such Lender then outstanding, together with accrued interest on the principal amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date, (ii) such Lender shall simultaneously make a Base Rate Advance to the Borrower on such date in an amount equal to the aggregate principal amount of the Eurodollar Rate Advances prepaid to such Lender, and (iii) the right of the Borrower to select Eurodollar Rate Advances from such Lender for any subsequent Borrowing shall be suspended until such Lender gives notice referred to above shall notify the Administrative Agent that the circumstances causing such suspension no longer exist.

     (e) No Additional Right; Ratable Prepayment. The Borrower shall have no right to prepay any principal amount of any Advance except as provided in this Section 2.05, and all notices given pursuant to this Section 2.05 shall be irrevocable and binding upon the Borrower. Each payment of any Advance pursuant to this Section 2.05 shall be made in a manner such that all Advances comprising part of the same Borrowing are paid in whole or ratably in part.

     Section 2.06 Repayment of Advances. The Borrower shall repay to the Administrative Agent for the ratable benefit of the Lenders the outstanding principal amount of each Advance, together with any accrued interest on the Maturity Date or such earlier date pursuant to Section 7.02 or Section 7.03.

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     Section 2.07 Letters of Credit.

     (a) Issuance. From time to time from the date of this Agreement until 30 days prior to the Commitment Termination Date, at the request of the Borrower, the Issuing Lender shall, on the terms and conditions hereinafter set forth, issue, increase, or extend the Expiration Date of, Letters of Credit for the account of the Borrower on any Business Day. No Letter of Credit will be issued, increased, or extended:

          (i) if such issuance, increase, or extension would cause the Letter of Credit Exposure to exceed the lesser of (A) $5,000,000 and (B) the Unused Commitment Amount;

          (ii) unless such Letter of Credit has an Expiration Date not later than the earlier of (A) 12 months after the date of issuance thereof (or, if extendable beyond such period, unless such Letter of Credit is cancelable upon not more than 30 days’ notice given by the Issuing Lender to the beneficiary of such Letter of Credit) and (B) the Maturity Date;

          (iii) unless such Letter of Credit Documents are in form and substance acceptable to the Issuing Lender in its sole discretion;

          (iv) unless such Letter of Credit is a standby letter of credit not supporting the repayment of indebtedness for borrowed money of any Person;

          (v) unless the Borrower has delivered to the Issuing Lender a completed and executed Letter of Credit Application; and

          (vi) unless such Letter of Credit is governed by either (A) the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 (or any successor to such publication) or (B) the International Standby Practices 1998, Institute of International Banking Law & Practice (or any successor to such publication).

If the terms of any Letter of Credit Application referred to in the foregoing clause (v) conflicts with the terms of this Agreement, the terms of this Agreement shall control.

     (b) Participations. Upon the date of the issuance or increase of a Letter of Credit, the Issuing Lender shall be deemed to have sold to each Lender and each Lender shall be deemed to have purchased from the Issuing Lender a participation in the related Letter of Credit Obligations equal to such Lender’s Pro Rata Share at such date and such sale and purchase shall otherwise be in accordance with the terms of this Agreement. The Issuing Lender shall promptly notify each Lender by telex, telephone, or telecopy of each Letter of Credit issued, increased, or extended or converted and the actual dollar amount of such Lender’s participation in such Letter of Credit; provided, however that the failure to give such notice shall not affect the validity of any such participation.

     (c) Issuing. Each Letter of Credit shall be issued, increased, or extended pursuant to a Letter of Credit Application (or by telephone notice promptly confirmed in writing by a Letter of Credit Application), given not later than 12:00 p.m. (New York time) on the fifth Business Day before the date of the proposed issuance, increase, or extension of the Letter of Credit, and

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the Issuing Lender shall give to each other Lender prompt notice thereof by telex, telephone, or telecopy. Each Letter of Credit Application shall be given by telecopier or telex, confirmed immediately in writing, specifying the information required therein. After the Issuing Lender’s receipt of such Letter of Credit Application and upon fulfillment of the applicable conditions set forth in Article III, the Issuing Lender shall issue, increase, or extend such Letter of Credit for the account of the Borrower. Each Letter of Credit Application shall be irrevocable and binding on the Borrower.

     (d) Reimbursement. The Borrower hereby agrees to pay on demand to the Issuing Lender an amount equal to any amount paid by the Issuing Lender under any Letter of Credit; provided that, subject to the terms and conditions of this Agreement, the Borrower may request a Advance hereunder for the purpose of satisfying any such reimbursement obligation. In the event the Issuing Lender makes a payment pursuant to a request for draw presented under a Letter of Credit and such payment is not promptly reimbursed by the Borrower pursuant to the preceding sentence, the Issuing Lender shall give the Administrative Agent notice of the Borrower’s failure to make such reimbursement and the Administrative Agent shall promptly notify each Lender of the amount necessary to reimburse the Issuing Lender. Upon such notice from the Administrative Agent, each Lender shall promptly reimburse the Issuing Lender for such Lender’s Pro Rata Share of such amount, and such reimbursement shall be deemed for all purposes of this Agreement to be a Advance to the Borrower transferred at the Borrower’s request to the Issuing Lender. If such reimbursement is not made by any Lender to the Issuing Lender on the same day on which the Administrative Agent notifies such Lender to make reimbursement to the Issuing Lender hereunder, such Lender shall pay interest on its Pro Rata Share thereof to the Issuing Lender at a rate per annum equal to the Federal Funds Rate. The Borrower hereby unconditionally and irrevocably authorizes, empowers, and directs the Administrative Agent and the Lenders to record and otherwise treat such reimbursements to the Issuing Lender as Base Rate Advances under a Borrowing requested by the Borrower to reimburse the Issuing Lender which have been transferred to the Issuing Lender at the Borrower’s request.

     (e) Obligations Unconditional. The obligations of the Borrower under this Agreement in respect of each Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances:

          (i) any lack of validity or enforceability of any Letter of Credit Documents;

          (ii) any amendment or waiver of, or any consent to or departure from, any Letter of Credit Documents;

          (iii) the existence of any claim, set-off, defense, or other right which the Borrower may have at any time against any beneficiary or transferee of such Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Lender, or any other person or entity, whether in connection with this Agreement, the transactions contemplated in this Agreement or in any Letter of Credit Documents, or any unrelated transaction;

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          (iv) any statement or any other document presented under such Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

          (v) payment by the Issuing Lender under such Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit; or

          (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

provided, however, that nothing contained in this paragraph (e) shall be deemed to constitute a waiver of any remedies of the Borrower in connection with the Letters of Credit or the Borrower’s rights under Section 2.07(f) below.

     (f) Liability of Issuing Lender. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Lender nor any of its officers or directors shall be liable or responsible for:

          (i) the use which may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith;

          (ii) the validity, sufficiency, or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent, or forged;

          (iii) payment by the Issuing Lender against presentation of documents which do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the relevant Letter of Credit; or

          (iv) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit (including the Issuing Lender’s own negligence),

except that the Borrower shall have a claim against the Issuing Lender, and the Issuing Lender shall be liable to the Borrower, to the extent of any direct, as opposed to consequential, damages suffered by the Borrower which the Borrower proves were caused by the Issuing Lender’s willful misconduct or gross negligence in determining whether documents presented under a Letter of Credit comply with the terms of such Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary.

     (g) Cash Collateral Account.

          (i) If the Borrower is required to deposit funds in the Cash Collateral Account pursuant to Sections 2.05(b), 7.02(b), or 7.03(b), then the Borrower and the Issuing Lender shall establish the Cash Collateral Account and the Borrower shall execute any documents and

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agreements, including the Issuing Lender’s standard form assignment of deposit accounts, that the Issuing Lender requests in connection therewith to establish the Cash Collateral Account and grant the Issuing Lender a first priority security interest in such account and the funds therein. The Borrower hereby pledges to the Issuing Lender and grants the Issuing Lender a security interest in the Cash Collateral Account, whenever established, all funds held in the Cash Collateral Account from time to time, and all proceeds thereof as security for the payment of the Obligations.

          (ii) So long as no Event of Default exists, (A) the Issuing Lender may apply the funds held in the Cash Collateral Account only to the reimbursement of any Letter of Credit Obligations, and (B) the Issuing Lender shall release to the Borrower at the Borrower’s written request any funds held in the Cash Collateral Account in an amount up to but not exceeding the excess, if any (immediately prior to the release of any such funds), of the total amount of funds held in the Cash Collateral Account over the Letter of Credit Exposure. During the existence of any Event of Default, the Issuing Lender may apply any funds held in the Cash Collateral Account to the Obligations in accordance with Section 7.06.

          (iii) The Issuing Lender shall exercise reasonable care in the custody and preservation of any funds held in the Cash Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Issuing Lender accords its own property, it being understood that the Issuing Lender shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any such funds.

     Section 2.08 Fees.

     (a) Commitment Fees. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee at a per annum rate equal to the Applicable Margin for commitment fees on the average daily Unused Commitment Amount of such Lender, from the date of this Agreement until the Commitment Termination Date. The commitment fees shall be due and payable quarterly in arrears on the last day of each March, June, September, and December commencing on March 31, 2005 and continuing thereafter through and including the Commitment Termination Date.

     (b) Letter of Credit Fees. The Borrower agrees to pay (i) to the Administrative Agent for the pro rata benefit of the Lenders a per annum letter of credit fee for each Financial Letter of Credit issued hereunder in an amount equal to the Applicable Margin for Eurodollar Rate Advances on the aggregate amount available for drawing from time to time under such Letter of Credit, (ii) to the Administrative Agent for the pro rata benefit of the Lenders a per annum letter of credit fee for each Performance Letter of Credit issued hereunder in an amount equal to 50% of the Applicable Margin for Eurodollar Rate Advances on the aggregate amount available for drawing from time to time under such Letter of Credit. Each such fee will be calculated based on the face amount of all Letters of Credit outstanding on each day at the above applicable rate and will be payable quarterly in arrears. In addition, the Borrower agrees to pay to the Issuing Lender, (i) a fronting fee for each Letter of Credit equal to 0.125% of the face amount of such Letter of Credit and (ii) such other usual and customary fees associated with any transfers, amendments, drawings, negotiations or reissuances of any Letters of Credit.

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     (c) Borrowing Base Increase Fees. The Borrower agrees to pay to the Administrative Agent for the account of the Lenders in connection with any increase of the Borrowing Base, a borrowing base increase fee in an amount equal to 0.25% multiplied by the amount of such increase. Such fee shall be due and payable on the date that the increase to the Borrowing Base becomes effective.

     (d) Other Fees. The Borrower agrees to pay to the Lead Arranger and the Administrative Agent the fees described in the Administrative Agent’s Fee Letter.

     Section 2.09 Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance made by each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:

     (a) Base Rate Advances. If such Advance is a Base Rate Advance, a rate per annum equal at all times to the Adjusted Base Rate in effect from time to time plus the Applicable Margin in effect from time to time, payable quarterly in arrears on the last day of each calendar quarter and on the date such Base Rate Advance shall be paid in full, provided that upon the occurrence and continuance of an Event of Default, such Advances shall bear interest from the date on which such Event of Default occurred until such Event of Default has been cured or waived, payable on demand, at a rate per annum equal at all times to the Adjusted Base Rate in effect from time to time plus the Applicable Margin plus 2.00%, provided that the rate charged pursuant to this Section 2.09(a) shall never exceed the Maximum Rate.

     (b) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the Eurodollar Rate for such Interest Period plus the Applicable Margin in effect from time to time, payable on the last day of such Interest Period, and, in the case of six-month Interest Periods, on the day which occurs during such Interest Period three months from the first day of such Interest Period, provided that upon the occurrence and continuance of an Event of Default, such Advance shall bear interest from the date on which such Event of Default occurred until such Event of Default has been cured or waived, payable on demand, at a rate per annum equal at all times to the rate required to be paid on such Advance immediately prior to the occurrence of such Event of Default plus 2.00%, provided further, that any amount of principal, interest, fees or any other amount which is not paid when due (whether at stated maturity, by acceleration, or otherwise) shall bear interest from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to the Adjusted Base Rate in effect from time to time plus the Applicable Margin plus 2.00%, provided that the rate charged pursuant to this Section 2.09(b) shall never exceed the Maximum Rate.

     (c) Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to each Lender, so long as any such Lender shall be required under regulations of the Federal Reserve Board to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the effective date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar

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Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Advance. Such additional interest payable to any Lender shall be determined by such Lender and notified to the Borrower through the Administrative Agent (such notice to include the calculation of such additional interest, which calculation shall be conclusive in the absence of manifest error).

     (d) Usury Recapture.

          (i) If, with respect to any Lender, the effective rate of interest contracted for under the Loan Documents, including the stated rates of interest and fees contracted for hereunder and any other amounts contracted for under the Loan Documents which are deemed to be interest, at any time exceeds the Maximum Rate, then the outstanding principal amount of the loans made by such Lender hereunder shall bear interest at a rate which would make the effective rate of interest for such Lender under the Loan Documents equal the Maximum Rate until the difference between the amounts which would have been due at the stated rates and the amounts which were due at the Maximum Rate (the “Lost Interest”) has been recaptured by such Lender.

          (ii) If, when the loans made hereunder are repaid in full, the Lost Interest has not been fully recaptured by such Lender pursuant to the preceding subsection (i), then, to the extent permitted by law, for the loans made hereunder by such Lender the interest rates charged under this Section 2.09 shall be retroactively increased such that the effective rate of interest under the Loan Documents was at the Maximum Rate since the effectiveness of this Agreement to the extent necessary to recapture the Lost Interest not recaptured pursuant to the preceding sentence and, to the extent allowed by law, the Borrower shall pay to such Lender the amount of the Lost Interest remaining to be recaptured by such Lender.

          (iii) Notwithstanding the foregoing or any other term in this Agreement and the Loan Documents to the contrary, it is the intention of each Lender and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the maximum rate, then any such excess shall be canceled automatically and, if previously paid, shall at such Lender’s option be applied to the outstanding amount of the Advances made hereunder by such Lender or be refunded to the Borrower.

     Section 2.10 Payments and Computations.

     (a) Payment Procedures. The Borrower shall make each payment under this Agreement and under the Notes not later than 12:00 p.m. (New York time) on the day when due in Dollars to the Administrative Agent at the location referred to in the Notes (or such other location as the Administrative Agent shall designate in writing to the Borrower) in same day funds without deduction, setoff, or counterclaim of any kind. The Administrative Agent shall promptly thereafter cause to be distributed like funds relating to the payment of principal, interest or fees ratably (other than amounts payable solely to the Administrative Agent, the Issuing Lender, or a specific Lender pursuant to Section 2.08(b), 2.08(d), 2.09(c), 2.12, 2.13, 2.14, 9.05, or 10.07, but after taking into account payments effected pursuant to Section 10.04) in accordance with each Lender’s Pro Rata Share to the Lenders for the account of their respective

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Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender or the Issuing Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.

     (b) Computations. All computations of interest based on the Base Rate and of fees shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate and the Federal Funds Rate shall be made by the Administrative Agent, on the basis of a year of 360 days, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate or fee shall be conclusive and binding for all purposes, absent manifest error.

     (c) Non-Business Day Payments. Whenever any payment shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

     (d) Administrative Agent Reliance. Unless the Administrative Agent shall have received written notice from the Borrower prior to the date on which any payment is due to the Lenders that the Borrower shall not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender, together with interest, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate for such day.

     Section 2.11 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances or Letter of Credit Obligations made by it in excess of its Pro Rata Share of payments on account of the Advances or Letter of Credit Obligations obtained by all the Lenders, such Lender shall notify the Administrative Agent and forthwith purchase from the other Lenders such participations in the Advances made by them or Letter of Credit Obligations held by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender’s ratable share (according to the proportion of (a) the amount of the participation sold by such Lender to the purchasing Lender as a result of such excess payment to (b) the total amount of such excess payment) of such recovery, together with an amount equal to such Lender’s ratable share (according to the proportion of (i) the amount of such Lender’s required repayment to the purchasing Lender to (ii) the total amount of all such required repayments to

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the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.11 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

     Section 2.12 Breakage Costs. If (a) any default by the Borrower in making any borrowing of, conversion into or continuation of any Eurodollar Rate Advance after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) any payment of any Eurodollar Rate Advance is made prior to the last day of the Interest Period for such Advance, whether as a result of any payment pursuant to Section 2.05, the acceleration of the maturity of the Notes pursuant to Article VII, or otherwise, or (c) any default by the Borrower in making any prepayment of any Eurodollar Rate Advance after the Borrower has given notice thereof in accordance with the provisions of this Agreement, the Borrower shall, within 10 days of any written demand sent by any Lender to the Borrower through the Administrative Agent, pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, out-of-pocket costs or expenses which it may reasonably incur as a result of such payment or nonpayment, including, without limitation, any loss, cost, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Advance.

     Section 2.13 Increased Costs.

     (a) Eurodollar Rate Advances. If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding, or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), immediately pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost and detailing the calculation of such cost submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error.

     (b) Capital Adequacy. If any Lender or the Issuing Lender determines in good faith that compliance with any law or regulation or any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or the Issuing Lender or any corporation controlling such Lender or the Issuing Lender and that the amount of such capital is increased by or based upon the existence of such Lender’s commitment to lend or the Issuing Lender’s commitment to issue the Letters of Credit and other commitments of this type, then, upon 30 days’ prior written notice by such Lender or the Issuing Lender (with a copy of any such demand to the Administrative Agent), the Borrower shall immediately pay to the

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Administrative Agent for the account of such Lender or to the Issuing Lender, as the case may be, from time to time as specified by such Lender or the Issuing Lender, additional amounts sufficient to compensate such Lender or the Issuing Lender for the reduced rate of return on that capital of such Lender or the Issuing Lender (but without duplication of amounts, if any, paid by the Borrower pursuant to Section 2.13(a) above), in light of such circumstances, (i) with respect to such Lender, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender’s commitment to lend under this Agreement and (ii) with respect to the Issuing Lender, to the extent that the Issuing Lender reasonably determines such increase in capital to be allocable to the issuance or maintenance of the Letters of Credit. A certificate as to such amounts and detailing the calculation of such amounts submitted to the Borrower by such Lender or the Issuing Lender shall be conclusive and binding for all purposes, absent manifest error.

     (c) Letters of Credit. If any change in any law or regulation or in the interpretation thereof by any court or administrative or Governmental Authority charged with the administration thereof shall either (i) impose, modify, or deem applicable any reserve, special deposit, or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of, the Issuing Lender or (ii) impose on the Issuing Lender any other condition regarding the provisions of this Agreement relating to the Letters of Credit or any Letter of Credit Obligations, and the result of any event referred to in the preceding clause (i) or (ii) shall be to increase the cost to the Issuing Lender of issuing or maintaining any Letter of Credit (which increase in cost shall be determined by the Issuing Lender’s reasonable allocation of the aggregate of such cost increases resulting from such event), then, upon demand by the Issuing Lender, the Borrower shall pay to the Issuing Lender, from time to time as specified by the Issuing Lender, additional amounts which shall be sufficient to compensate the Issuing Lender for such increased cost. A certificate as to such increased cost incurred by the Issuing Lender, as a result of any event mentioned in clause (i) or (ii) above, and detailing the calculation of such increased costs submitted by the Issuing Lender to the Borrower, shall be conclusive and binding for all purposes, absent manifest error.

     Section 2.14 Taxes.

     (a) No Deduction for Certain Taxes. Any and all payments by the Borrower shall be made, in accordance with Section 2.10, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender, the Issuing Lender, and the Administrative Agent, taxes imposed on its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender, the Issuing Lender, or the Administrative Agent (as the case may be) is organized or otherwise resides for tax purposes or maintains any Applicable Lending Office or any political subdivision of the jurisdiction, and any branch profits taxes imposed by the United States of America or any similar tax imposed by another jurisdiction in which the Borrower is located, and any withholding or similar taxes imposed by the United States of America, pursuant to laws in effect as of the date the Lender or the Issuing Lender becomes a party to this Agreement, upon any payments to or for the benefit of such Lender or Issuing Lender under this Agreement (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”) and, in the case of each Lender and the Issuing Lender, Taxes by the jurisdiction of such Lender’s

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Applicable Lending Office or any political subdivision of such jurisdiction. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable to any Lender, the Issuing Lender, or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14), such Lender, the Issuing Lender, or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made; provided, however, that if the Borrower’s obligation to deduct or withhold Taxes is caused solely by such Lender’s, the Issuing Lender’s, or the Administrative Agent’s failure to provide the forms described in paragraph (d) of this Section 2.14 and such Lender, the Issuing Lender, or the Administrative Agent could have provided such forms, no such increase shall be required; (ii) the Borrower shall make such deductions; and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. After a Lender or the Issuing Lender learns of the imposition of Taxes, such Lender or Issuing Lender will promptly notify Borrower of such Taxes.

     (b) Other Taxes. In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes, or the other Loan Documents (hereinafter referred to as “Other Taxes”).

     (c) Indemnification. The Borrower indemnifies each Lender, the Issuing Lender, and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender, the Issuing Lender, or the Administrative Agent (as the case may be) and any liability (including interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted unless the payment of such Taxes or Other Taxes were not correctly or legal asserted and such Lender’s payment of such Taxes or Other Taxes was the result of its gross negligence or wilful misconduct. Each payment required to be made by the Borrower in respect of this indemnification shall be made to the Administrative Agent for the benefit of any party claiming such indemnification within 30 days from the date the Borrower receives written demand therefor from the Administrative Agent on behalf of itself as Administrative Agent, the Issuing Lender, or any such Lender. Within 30 days after receipt of a written request by Borrower, a Lender or the Issuing Lender shall, at Borrower’s expense, make a claim to an applicable Governmental Authority for a refund if, in the judgment of such Lender or Issuing Lender, the making of such claim will not be adverse to it in respect of any Taxes as to which it has been indemnified by Borrower under this Section 2.14. If any Lender, the Administrative Agent, or the Issuing Lender receives a refund in respect of any Taxes paid by the Borrower under this Section 2.14, such Lender, the Administrative Agent, or the Issuing Lender, as the case may be, shall promptly pay to the Borrower the Borrower’s share of such refund. This paragraph shall not be construed to require the Administrative Agent, any Lender or the Issuing Lender to make available its tax

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returns (or any other information relating to its taxes) to the Borrower or any other Person.

     (d) Foreign Lender Withholding Exemption. Each Lender and Issuing Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that upon the request of the Borrower it shall deliver to the Borrower and the Administrative Agent (i) two duly completed copies of United States Internal Revenue Service Form W8-ECI, W8-IMY or W8-BEN or successor applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, (ii) if applicable, an Internal Revenue Service Form W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax, and (iii) any other governmental forms which are necessary or required under an applicable tax treaty or otherwise by law to reduce or eliminate any withholding tax, which have been reasonably requested by the Borrower. If an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any delivery required by the preceding sentence would otherwise be required which renders all such forms inapplicable or which would prevent any Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-9 establishing an exemption from United States backup withholding tax, such Lender shall not be required to deliver such form. Each Lender further agrees to deliver to Borrower and the Administrative Agent (i) renewals or additional copies of such forms (or any successor forms) on or before the date that such forms expire or become obsolete, and (ii) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by Borrower. The Borrower shall withhold tax at the rate and in the manner required by the laws of the United States with respect to payments made to a Lender failing to timely provide the requisite Internal Revenue Service forms. For any period with respect to which a Lender or the Issuing Lender has failed to provide the Borrower and the Administrative Agent with the appropriate form pursuant to this Section 2.14(d) (unless such failure is due to a change in treaty or Legal Requirement occurring subsequent to the date on which a form originally was required to be provided), such Lender or the Issuing Lender, as applicable, shall not be entitled to indemnification under Section 2.14(c) with respect to Taxes imposed by the United States which taxes would not have been imposed but for such failure to provide such forms; provided, however that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonable request to assist such Lender to recover such Taxes.

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ARTICLE III

CONDITIONS OF LENDING

     Section 3.01 Conditions Precedent to Closing Date. The Closing Date shall occur upon the satisfaction of the following conditions precedent that:

     (a) Documentation. The Administrative Agent shall have received the following duly executed by all the parties thereto, in form and substance satisfactory to the Administrative Agent, the Issuing Lender and the Lenders, and, where applicable, in sufficient copies for each Lender:

          (i) this Agreement;

          (ii) a Note payable to the order of each Lender in the amount of its Commitment;

          (iii) a Pledge Agreement executed by Brigham Exploration and the General Partner;

          (iv) stock certificates required in connection with the Pledge Agreements and stock powers executed in blank for each such stock certificate;

          (v) the Mortgage Amendments and any additional Mortgages that may be required pursuant to Section 5.11;

          (vi) copies of insurance policies or certificates thereof naming the Administrative Agent loss payee or additional insured, as applicable, certified by the Borrower’s insurance broker as true and correct copies thereof, and which are otherwise satisfactory to the Administrative Agent;

          (vii) a favorable opinion dated as of the Closing Date of Thompson & Knight L.L.P., counsel to the Credit Parties, in form and substance satisfactory to the Administrative Agent covering such matters as any Lender through the Administrative Agent may reasonably request;

          (viii) a favorable opinion dated as of the Closing Date of Dubberstein, Heinen & Morris, P.C., Oklahoma counsel to the Credit Parties, in form and substance reasonably satisfactory to the Administrative Agent;

          (ix) copies, certified as of the date of this Agreement by a Responsible Officer or the secretary or an assistant secretary of the General Partner of (A) the resolutions of the applicable governing body of the Borrower approving the Loan Documents to which the Borrower is a party, (B) the organizational documents of the Borrower, and (C) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Notes, the Security Instruments and the other Loan Documents to which the Borrower is a party;

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          (x) certificates of a Responsible Officer or the secretary or an assistant secretary of the General Partner certifying the names and true signatures of the officers of the General Partner authorized to sign on behalf of the Borrower this Agreement, the Notes, Notices of Borrowing, Notices of Conversion or Continuation, the Security Instruments and the other Loan Documents to which the Borrower is a party;

          (xi) copies, certified as of the date of this Agreement by a Responsible Officer or the secretary or an assistant secretary of each Guarantor of (A) the resolutions of the applicable governing body of such Guarantor approving the Loan Documents to which it is a party, (B) the organizational documents of such Guarantor, and (C) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Security Instruments, and the other Loan Documents to which such Guarantor is a party;

          (xii) a certificate of the secretary or an assistant secretary of each Guarantor certifying the names and true signatures of officers of such Guarantor authorized to sign this Agreement, the Security Instruments and the other Loan Documents to which such Guarantor is a party;

          (xiii) certificates from the appropriate Governmental Authority certifying as to the good standing, existence and authority of each of the Credit Parties in all jurisdictions where required by the Administrative Agent;

          (xiv) a certificate dated as of the date of this Agreement from the Responsible Officer of the General Partner stating that (A) all representations and warranties of the Borrower set forth in this Agreement are true and correct in all material respects; (B) no Default has occurred and is continuing; and (C) the conditions in this Section 3.01 have been met;

          (xv) the Intercreditor and Subordination Agreement;

          (xvi) results of lien, tax and judgment searches of the UCC Records of the Secretary of State and applicable counties of the States of Delaware, Oklahoma and Texas from a source acceptable to the Administrative Agent and reflecting no Liens against any of the Collateral as to which perfection of a Lien is accomplished by the filing of a financing statement other than in favor of the Administrative Agent, other than Permitted Liens;

          (xvii) appropriate UCC-1 or UCC-3 Financing Statements covering the Collateral for filing with the appropriate authorities and any other documents, agreements or instruments necessary to create an Acceptable Security Interest in such Collateral; and

          (xviii) such other documents, governmental certificates, agreements and lien searches as the Administrative Agent or any Lender may reasonably request.

     (b) Due Diligence. The Administrative Agent and the Lenders shall have completed satisfactory due diligence review of the assets, liabilities, business, operations and condition (financial or otherwise) of the Borrower and its Subsidiaries, including, but not limited, to a review of their Oil and Gas Properties, Subordinated Debt, and all legal, financial, accounting,

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governmental, environmental, tax and regulatory matters, and fiduciary aspects of the proposed financing.

     (c) Payment of Fees. On the date of this Agreement, the Borrower shall have paid the fees required by Section 2.08(d) and all costs and expenses that have been invoiced and are payable pursuant to Section 10.04.

     (d) Delivery of Financial Statements. The Administrative Agent and the Lenders shall have received true and correct copies of (i) the Financial Statements, and (ii) such other financial information as the Administrative Agent or any Lender may reasonably request.

     (e) No Default. No Default shall have occurred and be continuing.

     (f) Representations and Warranties. The representations and warranties contained in Article IV hereof and in each other Loan Document shall be true and correct in all respects.

     (g) Material Adverse Change. No event or circumstance that could cause a Material Adverse Change shall have occurred.

     (h) No Proceeding or Litigation; No Injunctive Relief. Except as described in Schedule 4.07, no action, suit, investigation or other proceeding (including, without limitation, the enactment or promulgation of a statute or rule) by or before any arbitrator or any Governmental Authority shall be threatened or pending and no preliminary or permanent injunction or order by a state or federal court shall have been entered against the Borrower or any of its Subsidiaries.

     (i) Consents, Licenses, Approvals, etc. The Administrative Agent shall have received true copies (certified to be such by a Responsible Officer the Borrower or other appropriate Credit Party) of all consents, licenses and approvals required in accordance with applicable Legal Requirements, or in accordance with any document, agreement, instrument or arrangement to which any Credit Party is a party, in connection with the execution, delivery, performance, validity and enforceability of this Agreement and the other Loan Documents. In addition, the Credit Parties shall have all such material consents, licenses and approvals required in connection with the continued operation of the Credit Parties, and such approvals shall be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on this Agreement and the actions contemplated hereby.

     (j) Subordinated Debt. The Borrower shall have entered into the Subordinated Credit Agreement, the terms and conditions thereof shall be reasonably satisfactory to the Administrative Agent and the Lenders and the conditions precedent set forth in Section 3.01 of the Subordinated Credit Agreement shall contemporaneously herewith have been satisfied or waived as of the date of the Closing Date. The Borrower shall have delivered copies of the Subordinated Credit Agreement and each other agreement, instrument, or document executed by any Credit Party or any of their officers at any time in connection with the Subordinated Credit Agreement on or before the Closing Date.

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     (k) Security Instruments. The Administrative Agent shall have received all appropriate evidence required by the Administrative Agent and the Lenders in their sole discretion necessary to determine that arrangements have been made for the Administrative Agent (for its benefit and the benefit of the Lenders) to have an Acceptable Security Interest in the Collateral and that all actions or filings necessary to protect, preserve and validly perfect such Liens have been made, taken or obtained (or will be upon the filing and recording of the appropriate Security Instruments), as the case may be, and are in full force and effect.

     (l) Title. The Administrative Agent shall be satisfied in its sole discretion with the title to the Oil and Gas Properties included in the Borrowing Base and that such Oil and Gas Properties constitute the percentage to be specified pursuant to the first sentence of Section 5.13.

     (m) Notice of Borrowing. The Administrative Agent shall have received a Notice of Borrowing with appropriate insertions and executed by a duly authorized Responsible Officer of the General Partner.

     Section 3.02 Conditions Precedent to All Borrowings. The obligation of each Lender to make an Advance on the occasion of each Borrowing and of the Issuing Lender to issue, increase, or extend any Letter of Credit shall be subject to the further conditions precedent that on the date of such Borrowing or the date of the issuance, increase, or extension of such Letter of Credit, the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, Notice of Conversion or Continuation, or Letter of Credit Application and the acceptance by the Borrower of the proceeds of such Borrowing or the issuance, increase, or extension of such Letter of Credit shall constitute a representation and warranty by the Borrower that on the date of such Borrowing, the issuance, increase, or extension of such Letter of Credit, such statements are true):

     (a) the representations and warranties contained in Article IV of this Agreement and the representations and warranties contained in the Security Instruments, the Guaranties, and each of the other Loan Documents are true and correct in all material respects on and as of the date of such Borrowing or the date of the issuance, increase, or extension of such Letter of Credit, before and after giving effect to such Borrowing or to the issuance, increase, or extension of such Letter of Credit and to the application of the proceeds from such Borrowing, as though made on and as of such date (unless such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respect as of such earlier date);

     (b) no Default has occurred and is continuing or would result from such Borrowing or from the application of the proceeds therefrom, or would result from the issuance, increase, or extension of such Letter of Credit; and

     (c) after giving effect to the such proposed Borrowing, no Borrowing Base Deficiency exists.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

     Each Credit Party jointly and severally represents and warrants as follows:

     Section 4.01 Corporate Existence; Subsidiaries. Each of the Credit Parties is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and in good standing and qualified to do business in each jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification and where the failure to so qualify could reasonably be expected to cause a Material Adverse Change. As of the Closing Date, the Credit Parties have no Subsidiaries other than those listed on Schedule 4.01.

     Section 4.02 Corporate Power. The execution, delivery, and performance by each Credit Party of this Agreement, the Notes, and the other Loan Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby (a) are within such Credit Party’s powers, (b) have been duly authorized by all necessary governing action, (c) do not contravene (i) such Credit Party’s governance documents or (ii) any Legal Requirement or any material contractual restriction binding on or affecting such Credit Party, and (d) will not result in or require the creation or imposition of any Lien upon any of the material Property of any Credit Party prohibited by this Agreement. At the time of each Advance, such Advance and the use of the proceeds of such Advance will (A) be within the Borrower’s limited partnership powers, (B) have been duly authorized by all necessary partnership action, (C) not contravene (i) the Borrower’s limited partnership agreement or other organizational documents or (ii) any Legal Requirement or any material contractual restriction of any material agreement binding on or affecting the Borrower and (D) not result in or require the creation or imposition of any Lien upon any of the material Property of any Credit Party prohibited by this Agreement.

     Section 4.03 Authorization and Approvals. No consent, order, authorization, or approval or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required for the due execution, delivery, and performance by any Credit Party of this Agreement, the Notes, or the other Loan Documents to which such Credit Party is a party or the consummation of the transactions contemplated hereby or thereby. At the time of each Borrowing and each issuance, increase or extension of a Letter of Credit, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required for such Borrowing or such issuance, increase or extension of such Letter of Credit or the use of the proceeds of such Borrowing or such Letter of Credit.

     Section 4.04 Enforceable Obligations. This Agreement, the Notes, and the other Loan Documents to which each Credit Party is a party have been duly executed and delivered by such Credit Party. Each Loan Document to which each Credit Party is a party is the legal, valid, and binding obligation of such Credit Party enforceable against such Credit Party in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors’ rights generally and by general principles of equity.

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     Section 4.05 Financial Statements.

     (a) The Borrower has delivered to the Administrative Agent and the Lenders the Financial Statements, and the Financial Statements are correct and complete in all material respects and present fairly the consolidated financial condition of the Credit Parties as of their respective dates and for their respective periods in accordance with GAAP, applied on a consistent basis. As of the date of the Financial Statements, there were no material Debt, trade payables, contingent obligations, liabilities for taxes, unusual forward or long-term commitments, or unrealized or anticipated losses of any Credit Party, except as disclosed therein and adequate reserves for such items have been made in accordance with GAAP.

     (b) Since December 31, 2003, no event or circumstance that could reasonably be expected to cause a Material Adverse Change has occurred.

     (c) Each of the Credit Parties is Solvent.

     Section 4.06 True and Complete Disclosure. All written information (whether delivered before or after the Closing Date) furnished by or on behalf of any Credit Party to any Lender or the Administrative Agent for purposes of or in connection with this Agreement, any other Loan Document or any transaction contemplated hereby or thereby, when taken as a whole, is true and accurate in all material respects on the date as of which such information is dated or certified (or, if not dated and certified, as of the date as of which such information is provided) and does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein not materially misleading at such time. All projections, estimates, and pro forma financial information furnished by the Borrower were prepared on the basis of assumptions, data, information, tests, or conditions believed to be reasonable at the time such projections, estimates, and pro forma financial information were furnished, but the Credit Parties do not represent and warrant that such projections, estimates or pro forma information is (or will ultimately prove to have been) accurate.

     Section 4.07 Litigation. There is no pending or, to the knowledge of any Responsible Officer of any Credit Party, threatened action or proceeding affecting any of the Credit Parties before any court, Governmental Authority or arbitrator which (a) both (i) involves the possibility of any judgment or liability against any Credit Party not fully covered by insurance (except for normal deductibles) and (ii) could reasonably be expected to cause a Material Adverse Change or (b) purports to affect the legality, validity, binding effect or enforceability of this Agreement, any Note, or any other Loan Document. Additionally, there is no pending or, to the knowledge of any Responsible Officer of any Credit Party, threatened action or proceeding instituted against any Credit Party which seeks to adjudicate such Credit Party as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its Property.

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     Section 4.08 Taxes.

     (a) Reports and Payments. All Returns (as defined below in clause (c) of this Section) required to be filed by or on behalf of any Credit Party or any member of the Controlled Group (hereafter collectively called the “Tax Group”) have been duly filed on a timely basis or appropriate extensions have been obtained and such Returns are and will be true, complete and correct in all material respects; and all Taxes shown to be payable on the Returns or on subsequent assessments with respect thereto will have been paid in full on a timely basis, and no other Taxes will be payable by the Tax Group with respect to items or periods covered by such Returns, except where any obligation is being contested in good faith and by appropriate proceedings and after adequate reserves for such items have been made in accordance with GAAP. The reserves for accrued Taxes reflected in the financial statements delivered to the Lenders under this Agreement are adequate in the aggregate for the payment of all unpaid Taxes, whether or not disputed, for the period ended as of the date thereof and for any period prior thereto, and for which the Tax Group may be liable in its own right, as withholding agent or as a transferee of the assets of, or successor to, any Person.

     (b) Taxes Definition. “Taxes” in this Section 4.08 shall mean all taxes, charges, fees, levies, or other assessments imposed by any federal, state, local, or foreign taxing authority, including without limitation, income, gross receipts, excise, real or personal property, sales, occupation, use, service, leasing, environmental, value added, transfer, payroll, and franchise taxes (and including any interest, penalties, or additions to tax attributable to or imposed on with respect to any such assessment).

     (c) Returns Definition. “Returns” in this Section 4.08 shall mean any federal, state, local, or foreign report, estimate, declaration of estimated Tax, information statement or return relating to, or required to be filed in connection with, any Taxes, including any information return or report with respect to backup withholding or other payments of third parties.

     Section 4.09 Pension Plans. All Plans are in compliance in all material respects with all applicable provisions of ERISA. No Termination Event has occurred with respect to any Plan, and each Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. No “accumulated funding deficiency” (as defined in Section 302 of ERISA) has occurred and there has been no excise tax imposed under Section 4971 of the Code. No Reportable Event has occurred with respect to any Multiemployer Plan, and each Multiemployer Plan has complied with and been administered in all material respects with applicable provisions of ERISA and the Code. The present value of all benefits vested under each Plan (based on the assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed the value of the assets of such Plan allocable to such vested benefits. None of the Credit Parties or any member of the Controlled Group has had a complete or partial withdrawal from any Multiemployer Plan for which there is any withdrawal liability. As of the most recent valuation date applicable thereto, none of the Credit Parties or any member of the Controlled Group would become subject to any liability under ERISA if any Credit Party or any member of the Controlled Group received notice that any Multiemployer Plan is insolvent or in reorganization. Based upon GAAP existing as of the date of this Agreement and current factual circumstances, no Credit Party has reason to believe that the annual cost during the term of this Agreement to any Credit Party or any other member of the

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Controlled Group for post-retirement benefits to be provided to the current and former employees of the Borrower or any member of the Controlled Group under welfare benefit plans (as defined in Section 3(1) of ERISA) could, in the aggregate, reasonably be expected to cause a Material Adverse Change.

     Section 4.10 Condition of Property; Casualties.

     (a) Subject to the matters set forth in Schedule 4.10, each of the Borrower and its Subsidiaries has good and indefeasible title to all of its Oil and Gas Properties evaluated in the most recently delivered Engineering Report, free and clear of all Liens except for Permitted Liens. Brigham Exploration has good and defensible title to all of the Equity Interests in the General Partner and, directly and indirectly, all of the ownership interests in the Limited Partners, except for Permitted Liens. Each of the General Partner and the Limited Partners has good and defensible title to all of the Equity Interests in the Borrower, except for Permitted Liens.

     (b) The quantum and nature of the interest of the Borrower and its Subsidiaries in and to its Hydrocarbon Interests as set forth in the most recent Engineering Report includes the entire interest of the Borrower and its Subsidiaries in such Hydrocarbon Interests as of the date of such Engineering Report and are complete and accurate in all material respects as of the date of such Engineering Report; and there are no “back-in” or “reversionary” interests held by third parties which could materially reduce the interest of the Borrower and its Subsidiaries in such Hydrocarbon Interests except as taken into account in such Engineering Report. The ownership of such Hydrocarbon Interests held by the Borrower and its Subsidiaries shall not in any material respect obligate any of such Persons to bear the costs and expenses relating to the maintenance, development, and operations of such Hydrocarbon Interests in an amount in excess of the working interest of such Person in each such Hydrocarbon Interest set forth in the most recent Engineering Report.

     (c) All leases, instruments and agreements comprising the Borrower’s and its Subsidiaries’ Oil and Gas Properties necessary for the conduct of business of the Borrower and its Subsidiaries are valid and subsisting, in full force and effect and there exists no default or event of default or circumstance which with the giving of notice or lapse of time or both would give rise to a default under any such leases, instruments or agreements, in each case which would affect in any material respect the conduct of the business of the Borrower and its Subsidiaries. Neither Borrower or any of its Subsidiaries nor, to the knowledge of Borrower, any other party to any leases, instruments or agreements comprising its Oil and Gas Properties evaluated in the most recently delivered Engineering Report, has given or threatened to give notice of any default under or inquiry into any possible default under, or action to alter, terminate, rescind or procure a judicial reformation of, any such lease, instrument or agreement.

     (d) All of the Properties of the Borrower and its Subsidiaries that are reasonably necessary for the operation of their business are in good repair, working order and condition in all material respects and are maintained as is customary in the oil and gas industry. Since the date of the most recent financial statements delivered pursuant to Section 5.06(a), neither the business nor the Properties of the Credit Parties, taken as a whole, has been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm,

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accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, Permits, or concessions by a Governmental Authority, riot, activities of armed forces, or acts of God or of any public enemy.

     (e) Except as set forth on Schedule 4.10 or as otherwise disclosed in writing to the Administrative Agent:

          (i) In each case only with respect to any of the Borrower’s and its Subsidiaries’ Oil and Gas Properties that have been assigned a discounted present value equal to or in excess of $2,000,000 in any Engineering Report, (A) all rentals, royalties, overriding royalties, shut-in royalties and other payments due under or with respect to any such Hydrocarbon Interests evaluated in any Engineering Report have been properly and timely paid in the ordinary course of business and (B) all material expenses payable under the terms of the contracts and agreements comprising such Oil and Gas Properties (other than those described above in clause (A)) have been properly and timely paid in the ordinary course of business, except in each case (1) where such payments are being contested in good faith by appropriate proceedings and for which adequate reserves complying with GAAP have been made or (2) for payments the late payment of which could not reasonably be expected to cause a termination or forfeiture of any of the Borrower’s or its Subsidiaries’ rights under any such leases, instruments or agreements comprising any such Oil and Gas Properties or otherwise, individually or in the aggregate, cause a Material Adverse Change;

          (ii) All of the proceeds from the sale of Hydrocarbons produced from the Borrower’s and its Subsidiaries’ Hydrocarbon Interests are being properly and timely paid to the Borrower without suspense, other than any such proceeds the late payment or non-payment of which could not reasonably be expected to cause a Material Adverse Change or materially adversely affect the value of the Collateral taken as a whole; and

          (iii) No material amount of proceeds that has been received by any Credit Party from the sale of Hydrocarbons produced from the Oil and Gas Properties evaluated in the most recently delivered Engineering Report is subject to any claim for any refund or refund obligation, except as permitted under Section 4.14 or Section 6.13.

     Section 4.11 Security Instruments.

     (a) The provisions of each of the Pledge Agreements delivered to the Administrative Agent are effective to create in favor of the Administrative Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the Pledged Collateral (as defined therein) and proceeds thereof and when (i) certificates, if any, representing or constituting the Pledged Collateral are delivered to the Administrative Agent, the Pledge Agreement shall constitute a first priority Acceptable Security Interest in, all right, title and interest of the pledgor party thereto in such Pledged Collateral and the proceeds thereof, subject to Permitted Liens or and (ii) upon the filing of UCC-1 Financing Statements with the secretary of state of each jurisdiction of formation for each of the grantors party thereto, the Pledge Agreements shall constitute a first priority Acceptable Security Interest in, all right, title and interest of the applicable Credit Party in such Pledged Collateral and the proceeds thereof, subject to Permitted Liens.

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     (b) On the Closing Date, the Equity Interests listed on Schedule I to each of the Pledge Agreements will constitute all the issued and outstanding Equity Interests in the Borrower, the General Partner, the Limited Partners, and the direct and indirect Subsidiaries of the Borrower; all such Equity Interests have been duly and validly issued and are fully paid and nonassessable; and the relevant pledgor of said shares is the record and beneficial owner of said shares.

     (c) The provisions of the Mortgages will be effective to grant to the Administrative Agent, for the ratable benefit of the Lenders, legal, valid and enforceable mortgage liens on all of the right, title and interest of the Borrower and its Subsidiaries in the mortgaged property described therein. Once such Mortgages have been recorded in the appropriate recording office, the Mortgages will constitute perfected first liens on, and security interest in, such mortgaged property, subject to Permitted Liens.

     (d) On the Closing Date, all governmental actions and all other filings, recordings, registrations, third party consents and other actions which are necessary to create and perfect the Liens provided for in the Security Instruments will have been made, obtained and taken in all relevant jurisdictions (or are the subject of arrangements, satisfactory to the Administrative Agent, to be made, obtained or taken on or promptly after the Closing Date). No other filings or recordings are required in order to perfect the security interests created under any Security Instruments.

     Section 4.12 No Burdensome Restrictions; No Defaults.

     (a) Neither the Borrower nor any of its Subsidiaries is a party to any indenture, loan, or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction or provision of applicable law or governmental regulation that could reasonably be expected to cause a Material Adverse Change. Neither the Borrower nor any of its Subsidiaries is in default nor has any event or circumstance occurred which, but for the expiration of any grace period or the giving of notice, or both, would constitute a default under (i) the Subordinated Credit Agreement or (ii) any other material contract, agreement, lease, or other instrument to which such Credit Party is a party which default could reasonably be expected to cause a Material Adverse Change.

     (b) No Default has occurred and is continuing.

     Section 4.13 Environmental Condition. Other than exceptions to any of the following that would not reasonably be expected to cause a Material Adverse Change or materially adversely affect the value of the Collateral taken as a whole:

     (a) Permits, Etc. With respect to its Oil and Gas Properties for which such Credit Party is the operator and with respect to its Oil and Gas Properties that are operated by operators other than the Borrower or a Subsidiary, to the best of its knowledge, in all material respects, each of the Credit Parties (i) has obtained all Environmental Permits necessary for the ownership and operation of any and all of their respective Properties for which such Credit Party is the operator and the conduct of their respective businesses; (ii) have at all times been and are in compliance with all terms and conditions of such Permits and with all other requirements of

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applicable Environmental Laws and other Legal Requirements; (iii) have not received notice of any violation or alleged violation of any Environmental Law or any such Permit; and (iv) are not subject to any actual or contingent Environmental Claim with respect to such Properties.

     (b) Certain Liabilities. None of the present or, to the best knowledge of any Credit Party, previously owned or operated Property of any of the Credit Parties, wherever located, (i) has been placed on or proposed to be placed on the National Priorities List, the Comprehensive Environmental Response Compensation Liability Information System list, or their state or local analogs, or have been otherwise investigated, designated, listed, or identified as a potential site for removal, remediation, cleanup, closure, restoration, reclamation, or other response activity under any Environmental Laws; or (ii) is subject to a Lien other than a Permitted Lien, arising under or in connection with any Environmental Laws, that attaches to any revenues or to any Property owned or operated by the Borrower or any of its Subsidiaries, wherever located. To the best knowledge of any Credit Party, none of the present or previously owned Property of any of the Credit Parties, wherever located, has been the site of any Release of Hazardous Substances or Hazardous Wastes from present or past operations that has caused at the site or at any third-party site any condition that has resulted in or could reasonably be expected to result in the need for Response.

     (c) Certain Actions. Without limiting the foregoing, (i) neither Borrower nor any Subsidiary of Borrower has filed any notice under any Law indicating that any such Person is responsible for the improper Release in the Environment, or the improper storage or disposal, of any material amount of any Hazardous Wastes or that any Hazardous Wastes have been improperly released, or are improperly stored or disposed of, upon any Property of any such Person, and (ii) neither Borrower nor any of its Subsidiaries has any known contingent liability under any Environmental Laws.

     Section 4.14 Gas Contracts. Except as set forth in the most recent Engineering Report or in Schedule 4.14, on a net basis there are no material gas imbalances, material take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower and its Subsidiaries (or, in the case of Oil and Gas Properties operated by operators other than the Borrower or its Subsidiaries, to the Borrower’s knowledge after reasonable investigation) that would require the Borrower and its Subsidiaries to deliver 2.5% or more of the aggregate calendar quarter production from the Borrower’s and its Subsidiaries’ Hydrocarbons produced on a calendar quarter basis from their Hydrocarbon Interests at some future time without then or thereafter receiving full payment therefor.

     Section 4.15 Compliance with Laws. Except for any failure to comply with any of the foregoing which would not reasonably be expected to cause a Material Adverse Change, each of the Credit Parties has (a) complied with all applicable Legal Requirements of any Governmental Authority having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property and (b) obtained all Permits that are necessary for the ownership of any of its Properties or the conduct of their business. Other than exceptions to any of the following that would not reasonably be expected to cause a Material Adverse Change: (i) the prices being received by the Borrower and its Subsidiaries for the production of Hydrocarbons do not violate any material provision of any contract or agreement comprising the Oil and Gas Properties of the Borrower and its Subsidiaries or any Legal Requirement, (ii) where applicable, all of the wells

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located on the Borrower’s and its Subsidiaries’ Hydrocarbon Interests and production of Hydrocarbons therefrom have been properly classified under appropriate governmental regulations, (iii) all necessary regulatory filings have been properly made in connection with the drilling, completion and operation of the wells on or attributable to the Borrower’s and its Subsidiaries’ Hydrocarbon Interests and all other operations related thereto and (iv) all production and sales of the Borrower’s and its Subsidiaries’ Hydrocarbons produced or sold from the Borrower’s and its Subsidiaries’ Hydrocarbon Interests have been made in accordance with any applicable allowables (plus permitted tolerances) imposed by any Governmental Authorities.

     Section 4.16 Material Agreements. Schedule 4.16 sets forth a complete and correct list of all material agreements, leases, indentures, purchase agreements, obligations in respect of letters of credit, guarantees, joint venture agreements, and other instruments in effect or to be in effect as of the Closing Date providing for, evidencing, securing or otherwise relating to any material Debt of the Borrower or any of its Subsidiaries, and all obligations of the Borrower or any of its Subsidiaries to issuers of surety or appeal bonds (other than operator’s bonds, plugging and abandonment bonds, and similar surety obligations obtained in the ordinary course of business) issued for the account of the Borrower or any of its Subsidiaries, and such list correctly sets forth the names of the debtor or lessee and creditor or lessor with respect to the Debt or lease obligations outstanding or to be outstanding and the Property subject to any Lien securing such Debt or lease obligation.

     Section 4.17 Organizational Documents. The Partnership Agreement has not been terminated, is in full force and effect as of the Closing Date and no default has occurred and is continuing thereunder that could reasonably be expected to cause a Material Adverse Change.

     Section 4.18 Guarantors. All of the Borrower’s Subsidiaries are Guarantors under Article VIII.

     Section 4.19 Insurance. Each of the Borrower and its Subsidiaries carry insurance required under Section 5.02.

     Section 4.20 Use of Proceeds. The proceeds of the Advances will be used by the Borrower for the purposes described in Section 5.10. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). No proceeds of any Advance will be used to purchase or carry any margin stock in violation of Regulation T, U or X.

     Section 4.21 Investment Company Act. Neither Brigham Exploration nor any of its Subsidiaries is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

     Section 4.22 Public Utility Holding Company Act. Neither Brigham Exploration nor any of its Subsidiaries is a “holding company,” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” or a “public utility” within the meaning of the Public Utility Holding Company Act of 1935, as amended.

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     Section 4.23 Transmitting Utility. Neither Brigham Exploration nor any of its Subsidiaries is a “transmitting utility” or an “interstate gas pipeline company” or a “public service corporation” within the meaning of the laws currently in effect for the States of Texas and/or Oklahoma.

ARTICLE V

AFFIRMATIVE COVENANTS

     So long as any Note or any amount under any Loan Document shall remain unpaid, any Letter of Credit shall remain outstanding, or any Lender shall have any Commitment hereunder, each of the Credit Parties agrees to comply with the following covenants.

     Section 5.01 Compliance with Laws, Etc. The Borrower shall comply, and cause each of its Subsidiaries to comply, in all material respects with all Legal Requirements; provided, however, that this Section 5.01 shall not prevent the Borrower or any of its Subsidiaries from, in good faith and with reasonable diligence, contesting the validity or application of any such laws or regulations by appropriate legal proceedings. Without limitation of the foregoing, the Borrower shall use commercially reasonable efforts to obtain, and shall cause each of its Subsidiaries to use commercially reasonable efforts to obtain, as soon as practicable, all consents or approvals required from any states of the United States (or other Governmental Authorities) necessary to grant the Administrative Agent an Acceptable Security Interest in the Borrower’s and its Subsidiaries’ Oil and Gas Properties.

     Section 5.02 Maintenance of Insurance.

     (a) The Borrower shall, and shall cause each of its Subsidiaries to, maintain with financially sound and reputable insurance companies insurance of such types, in such amounts and against such risks as is customary to be maintained by companies engaged in the same or a similar business in the same general area; and furnish to the Administrative Agent, upon written request, full information as to the insurance carried. In addition, the Borrower shall, and shall cause each of its Subsidiaries to, comply with all requirements regarding insurance contained in the Security Instruments.

     (b) All certified copies of policies or certificates thereof, and endorsements and renewals thereof shall be delivered to and retained by the Administrative Agent. All policies of insurance shall either have attached thereto a Lender’s loss payable endorsement for the benefit of the Administrative Agent, as loss payee in form reasonably satisfactory to the Administrative Agent or shall name the Administrative Agent as an additional insured, as applicable. All policies or certificates of insurance shall set forth the coverage, the limits of liability, the name of the carrier, the policy number, and the period of coverage. In addition, all policies of insurance required under the terms hereof shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act of negligence of the Borrower, or a Subsidiary or any party holding under the Borrower or a Subsidiary which might otherwise result in a forfeiture of the insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or deductions against the Borrower and its Subsidiaries. All such policies shall contain a provision that notwithstanding

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any contrary agreements between the Borrower, its Subsidiaries, and the applicable insurance company, such policies will not be canceled, allowed to lapse without renewal, surrendered or amended (which provision shall include any reduction in the scope or limits of coverage) without at least 10 days’ prior written notice to the Administrative Agent in the event of the Borrower’s failure to pay any premiums and in all other cases, 30 days’ prior written notice to the Administrative Agent. In the event that, notwithstanding the “lender’s loss payable endorsement” requirement of this Section 5.02, the proceeds of any insurance policy described above are paid to the Borrower or a Subsidiary of the Borrower, the Borrower shall deliver such proceeds to the Administrative Agent immediately upon receipt. So long as no Default or Event of Default shall have occurred that is continuing, Borrower shall be entitled to retain the proceeds of any insurance policy described above.

     Section 5.03 Preservation of Corporate Existence, Etc. Each of the Credit Parties shall preserve and maintain its corporate, limited partnership or limited liability company, as applicable, existence, and all of its material rights, franchises, and privileges in the jurisdiction of its formation, and qualify and remain qualified as a foreign entity in each jurisdiction in which qualification is necessary or desirable in view of its business and operations or the ownership of its Properties to the extent the failure to qualify could reasonably be expected to cause a Material Adverse Change.

     Section 5.04 Payment of Taxes, Etc. The Borrower shall, and shall cause each of its Subsidiaries to, pay and discharge, before the same shall become delinquent, (a) all taxes, assessments, and governmental charges or levies imposed upon it or upon its income or profits or Property prior to the date on which penalties attach thereto and (b) all lawful claims that are material in amount which, if unpaid, could by law become a Lien upon its Property; provided, however, that neither the Borrower nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge, levy, or claim which is being contested in good faith and by appropriate proceedings, and with respect to which reserves in conformity with GAAP have been provided.

     Section 5.05 Inspection; Books and Records. Upon reasonable notice, each Credit Party shall permit the Administrative Agent or any of its agents or representatives thereof, during normal business hours, to (a) examine and make copies of and abstracts from the records and books of account of, and visit and inspect at their reasonable discretion the Properties of, such Credit Party, and (b) discuss the affairs, finances and accounts of such Credit Party with any of their respective officers or directors, all to the extent reasonably requested by the Administrative Agent. Each Credit Party shall keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Legal Requirements shall be made of all dealings and transactions in relation to its business and activities.

     Section 5.06 Reporting Requirements. The Borrower shall furnish, or shall cause the applicable Credit Party to furnish, to the Administrative Agent and each Lender:

     (a) Annual Financials of Brigham Exploration. As soon as available, but in any event within 90 days after the end of each fiscal year of Brigham Exploration or sooner if required by the SEC, the audited consolidated statements of income, stockholders’ equity, changes in financial position and cash flow of Brigham Exploration and its consolidated Subsidiaries for

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such fiscal year, and the related consolidated and unaudited consolidating balance sheets of Brigham Exploration and its consolidated Subsidiaries as at the end of such fiscal year, and setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, together with a certification by its Chief Executive Officer and its Chief Financial Officer in accordance with the Sarbanes-Oxley Act of 2002 and accompanied by the related opinion of independent public accountants of recognized national standing reasonably acceptable to the Administrative Agent which opinion shall state that such financial statements fairly present the consolidated financial position and results of operations of Brigham Exploration and its consolidated Subsidiaries as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP except for such changes in such principles with which the independent public accountants shall have concurred and such opinion shall not contain a “going concern” or like qualification or exception;

     (b) Quarterly Financials of Brigham Exploration. As soon as available, but in any event not later than 45 days after the end of each of the first three quarterly fiscal periods of each fiscal year of Brigham Exploration and its consolidated Subsidiaries (or sooner if required by the SEC), consolidated statements of income, stockholders’ equity, changes in financial position and cash flow of Brigham Exploration and its consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and consolidating balance sheets of Brigham Exploration and its consolidated Subsidiaries as at the end of such period, and setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, together with a certification by its Chief Executive Officer and its Chief Financial Officer in accordance with the Sarbanes-Oxley Act of 2002 and accompanied by the certificate of a Responsible Officer of Brigham Exploration, which certificate shall state that such financial statements fairly present the consolidated financial position and results of operations of Brigham Exploration and its consolidated Subsidiaries in accordance with GAAP, as at the end of, and for such period (subject to normal year-end audit adjustments);

     (c) Compliance Certificates. Concurrently with the delivery of each of the financial statements referred to in subsections 5.06(a) and (b), a Compliance Certificate executed by a Responsible Officer of Brigham Exploration;

     (d) Insurance Certificates. Concurrently with the annual renewal thereof, insurance certificates naming the Administrative Agent loss payee or additional insured, as applicable, and evidencing insurance which meets the requirements of this Agreement and the Security Instruments;

     (e) Notice of Defaults. As soon as possible after the occurrence of a Default known to any Responsible Officer of any Credit Party which is continuing on the date of such statement, a statement of a Responsible Officer setting forth the details of such Default and the actions which the Credit Parties have taken and propose to take with respect thereto;

     (f) Material Changes. Prompt written notice of any condition or event of which any Responsible Officer of any Credit Party has knowledge, which condition or event has resulted or could reasonably be expected to cause a Material Adverse Change;

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     (g) Annual Capital Expenditures Budget. As soon as available and in any event prior to January 31, a one- year capital expenditure projection for Brigham Exploration and its Subsidiaries in form and substance acceptable to the Administrative Agent for the following fiscal year;

     (h) Litigation. Prompt written notice of (i) any claims, legal or arbitration proceedings, proceedings before any Governmental Authority, or disputes, or to the knowledge of the Borrower threatened, or affecting any Credit Party which, if adversely determined, could reasonably be expected to cause a Material Adverse Change, (ii) any material litigation or proceeding against the Borrower or any of its Subsidiaries in which the amount involved is not covered in full by insurance (subject to normal and customary deductibles), or in which injunctive or similar relief is sought or (iii) any claim, judgment, Lien or other encumbrance (other than a Permitted Lien) affecting any Property of the Borrower or any of its Subsidiaries if the value of such claim, judgment, Lien, or other encumbrance affecting such Property shall exceed $2,000,000 (excluding liabilities to the extent covered by insurance unless the insurer has disputed that such insurance covers such liabilities);

     (i) Environmental. Prompt written notice of any threatened action, investigation or inquiry by any Governmental Authority of which any Responsible Officer of any Credit Party has knowledge in connection with any Environmental Laws with respect to the Property of the Borrower or any of its Subsidiaries, excluding routine testing, compliance and corrective action;

     (j) Other Accounting Reports. Promptly upon receipt thereof, a copy of each other report or letter (excluding routine correspondence) submitted to any Credit Party by independent accountants in connection with any annual, interim or special audit made by them of the books of any Credit Party, and a copy of any response by any Credit Party to such letter or report;

     (k) Securities Law Filings and other Public Information. Promptly, upon its becoming available, each financial statement, notice, proxy material, reports and other information which any Credit Party sends to the holders of its respective public securities generally, files with or received from the SEC (excluding correspondence and other information received from the SEC concerning draft registration statements), or otherwise makes available to the public or the financial community generally;

     (l) Notices Under Other Loan Agreements. Promptly after the furnishing thereof, copies of any statement, report or notice furnished to any Person pursuant to the terms of any indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 5.06;

     (m) ERISA Information and Compliance. Promptly furnish, and will cause any ERISA Affiliate to promptly furnish, (i) if requested by the Administrative Agent promptly after the filing thereof with the United States Secretary of Labor, the Interest Revenue Service or the PBGC, copies of each annual and other report with respect to each Plan or any trust created thereunder, (ii) immediately upon becoming aware of the occurrence of any ERISA Event or of any “prohibited transaction,” as described in section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by a Responsible Officer of the General Partner or such ERISA Affiliate specifying the nature

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thereof, what action the borrower or the ERISA Affiliate is taking or proposes to take with respect thereto, and when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, and (iii) immediately upon receipt thereof, copies of any notice of the PBGC’s intention to terminate or to have a trustee appointed to administer any Plan;

     (n) Acquisition Information. Concurrently with the delivery of each of the financial statements referred to in subsections 5.06(a) and (b), a list of any Properties consisting of Oil and Gas Properties purchased by the Borrower or any of its Subsidiaries during the previous fiscal quarter other than in the ordinary course of business for a price equal to or greater than $5,000,000 for any single transaction or group of related transactions or $10,000,000 in the aggregate during the previous twelve months (unless previously disclosed), together with such other information regarding such Oil and Gas Properties as Administrative Agent or any Lender may reasonably request; and

     (o) Other Information. Subject to any applicable restrictions on disclosure, such other information respecting the business or Properties, or the condition or operations, financial or otherwise, of the Credit Parties (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA), as any Lender through the Administrative Agent may from time to time reasonably request. The Administrative Agent agrees to provide the Lenders with copies of any material notices and information delivered solely to the Administrative Agent pursuant to the terms of this Agreement.

Documents required to be delivered pursuant to Section 5.06(a), (b) or (k) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which Brigham Exploration posts such documents, or provides a link thereto on Brigham Exploration’s website on the Internet; or (ii) on which such documents are posted on Brigham Exploration’s behalf on an Internet or intranet website (such as “Edgar”), if any, to which each Lender and the Administrative Agent have access (whether a commercial third-party website or whether sponsored by the Administrative Agent); provided that: (A) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (B) the Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 5.06(c) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

     Section 5.07 Maintenance of Property. The Borrower shall, and shall cause each of its Subsidiaries to, (a) develop and operate its Oil and Gas Properties in a good and workmanlike manner as is customary in the oil and gas industry, and observe and comply in all material

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respects with all of the terms and provisions, express or implied, of all oil and gas leases relating to such Oil and Gas Properties so long as the oil and gas leases are capable of producing Hydrocarbons in quantities and at prices providing for continued efficient and profitable operation of business; (b) comply in all material respects with all contracts and agreements applicable to or relating to its Oil and Gas Properties or the production and sale of Hydrocarbons and accompanying elements therefrom; (c) maintain, preserve, and keep all operating equipment used with respect to its Oil and Gas Properties in proper repair, working order and condition (ordinary wear and tear excepted) in a good and workmanlike manner as is customary in the oil and gas industry, and (d) with respect to its Oil and Gas Properties that are operated by operators other than the Borrower or a Subsidiary, (i) seek to enforce the operators’ contractual obligations to maintain, develop, and operate such Properties subject to the applicable operating agreements and (ii) cause or make reasonable and customary efforts to cause such Oil and Gas Properties to be operated in a good and workmanlike manner as is customary in the oil and gas industry.

     Section 5.08 Environmental Laws. To the extent that a reasonably prudent owner or operator would do so under the same or similar circumstances, the Borrower shall, and shall cause each of its Subsidiaries to establish and implement such procedures as may be reasonably necessary to periodically determine and assure that any failure of the following does not cause a Material Adverse Change: (i) all Property of the Borrower and its Subsidiaries and the operations conducted thereon and other activities of the Borrower and the Subsidiaries are in compliance with and do not violate the requirements of any Environmental Laws; (ii) no Hazardous Substances or Hazardous Wastes are disposed of or otherwise released on or to any Property owned by any such party except in compliance with Environmental Laws, (iii) no Hazardous Substance will be released on or to any such Property in a quantity equal to or exceeding that quantity that requires reporting under CERCLA, and (iv) no Hazardous Substances or Hazardous Wastes is released on or to any such Property so as to pose an imminent and substantial endangerment to public health or welfare or the environment. With respect to Oil and Gas Properties owned by the Borrower and/or any of its Subsidiaries, but with respect to which neither the Borrower nor a Subsidiary is the operator, the Borrower shall use commercially reasonable efforts to cause the operator of such Oil and Gas Properties to establish and implement procedures and take any other actions required of the Borrower under this Section 5.08.

     Section 5.09 Payment of Trade Payables. Each of the Credit Parties shall pay, and shall cause each of its Subsidiaries to pay, all of their customary trade payables incurred in the ordinary course of business now or hereafter incurred within 90 days of the date the invoice is received by such Credit Party, unless subject to legal offset or unless being contested in good faith by appropriate proceedings and reserves adequate under GAAP shall have been established therefore.

     Section 5.10 Use of Proceeds. The Borrower shall use the proceeds of the Advances and Letters of Credit (a) to refinance Debt under the Existing Senior Credit Agreement and (b) for other general partnership purposes.

     Section 5.11 Additional Collateral. The Borrower will grant, and will cause each of its Subsidiaries to grant, to the Administrative Agent an Acceptable Security Interest in such Oil and Gas Properties of the Borrower and its Subsidiaries, constituting 80% of the discounted net

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present value of the Proven Reserves of the Borrower and its Subsidiaries as determined by the Administrative Agent.

     Section 5.12 New Subsidiaries. Within 10 days after (a) the date of the creation of any new Subsidiary of Brigham Exploration or the Borrower, or (b) the purchase by Brigham Exploration, the Borrower, or any of its other Subsidiaries of the Equity Interests of any Person, which purchase results in such Person becoming a Subsidiary of Brigham Exploration or of the Borrower permitted by this Agreement, Brigham Exploration or the Borrower, as applicable, shall, in each case, cause (i) such Person to execute and deliver to the Administrative Agent (with sufficient originals for each applicable Lender) a joinder agreement to this Agreement in form and substance acceptable to the Administrative Agent, a Pledge Agreement (if such new Subsidiary owns one or more Subsidiaries), one or more Mortgages (if such new Subsidiary owns Oil and Gas Properties and if such Mortgages are otherwise required under Section 5.11), and such other Security Instruments as the Administrative Agent or any Lender may reasonably request (to the extent that such other Security Interests are required to be delivered under the terms of this Agreement), in each case to secure the Obligations together with evidence of corporate authority to enter into and such legal opinions in relation to such joinder agreement, Pledge Agreement, Mortgages, and other Security Instruments as the Administrative Agent may reasonably request, and (ii) the stockholder of such new Subsidiary to execute a Pledge Agreement pledging its interests in the Equity Interests of such new Subsidiary to secure the Obligations and such evidence of corporate authority to enter into and such legal opinions in relation to such Pledge Agreement as the Administrative Agent may reasonably request, along with share certificates, if any, pledged thereby and appropriately executed stock powers in blank.

     Section 5.13 Title. As of the Closing Date, the Administrative Agent shall have received title opinions, title reports or other title due diligence reflecting that the Borrower has title reasonably satisfactory to the Administrative Agent in such Oil and Gas Properties of the Borrower and its Subsidiaries constituting 80% of the Borrower’s and its Subsidiaries’ proved, developed, producing Hydrocarbon reserves and proved, developed, nonproducing Hydrocarbon reserves (each as determined in conformity with the guidelines in effect from time to time as promulgated by the Society of Petroleum Engineers or its successor association) as determined by the Administrative Agent. Thereafter, with respect to Oil and Gas Properties acquired after the Closing Date or not previously included in the Borrowing Base, and to the extent necessary to allow the Administrative Agent to achieve the percentage described in the preceding sentence, the Borrower shall from time to time upon the reasonable request of the Administrative Agent, take such actions and execute and deliver such documents and instruments as the Administrative Agent shall require to ensure that the Administrative Agent shall, at all times, have received satisfactory title opinions (including, if requested, supplemental or new title opinions addressed to it), title reports, or other title due diligence, which title diligence shall be in form and substance reasonably acceptable to the Administrative Agent and shall include information regarding the before payout and after payout ownership interests held by the Borrower and its Subsidiaries, for all wells located on the Oil and Gas Properties covered thereby as to the ownership of Oil and Gas Properties of the Borrower and its Subsidiaries.

     Section 5.14 Further Assurances. The Borrower shall, and shall cause each of its Subsidiaries to, cure promptly any defects in the execution and delivery of the Loan Documents, including, without limitation, the Security Instruments and this Agreement. The Borrower

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hereby authorizes the Administrative Agent to file any financing statements without the signature of the Borrower to the extent permitted by applicable law in order to perfect or maintain the perfection of any security interest granted under any of the Loan Documents. The Borrower at its expense will, and will cause each of its Subsidiaries to, promptly execute and deliver to the Administrative Agent upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Borrower or any Subsidiary of the Borrower, as the case may be, in the Security Instruments and this Agreement, or to further evidence and more fully describe the collateral intended as security for the Notes, or to correct any omissions in the Loan Documents, or to state more fully the security obligations set out herein or in any of the Loan Documents, or to perfect, protect or preserve any Liens created pursuant to any of the Loan Documents, or to make any recordings, to file any notices or obtain any consents, all as may be necessary or appropriate in connection therewith or to enable the Administrative Agent to exercise and enforce its rights and remedies with respect to any Collateral.

ARTICLE VI

NEGATIVE COVENANTS

     So long as any Note or any amount under any Loan Document shall remain unpaid, any Letter of Credit shall remain outstanding, or any Lender shall have any Commitment, each of the Credit Parties agrees to comply with the following covenants.

     Section 6.01 Liens, Etc. None of the Credit Parties shall create, assume, incur, or suffer to exist, or permit any of their Subsidiaries to create, assume, incur, or suffer to exist, any Lien on or in respect of any of its Property whether now owned or hereafter acquired, or assign any right to receive income, except that the Credit Parties may create, incur, assume, or suffer to exist the following (collectively, the “Permitted Liens”):

     (a) Liens securing the Obligations;

     (b) Liens securing the Subordinated Debt;

     (c) Excepted Liens;

     (d) Liens securing leases allowed under Section 6.02(f) but only on the Property under lease;

     (e) Liens disclosed on Schedule 6.01; and

     (f) any encumbrances permitted under the terms of any Mortgage.

     Section 6.02 Debts, Guaranties, and Other Obligations. None of the Credit Parties shall, and none of the Credit Parties shall permit any of their Subsidiaries to, create, assume, suffer to exist, or in any manner become or be liable in respect of, any Debt except:

     (a) Debt of the Borrower and its Subsidiaries under the Loan Documents;

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     (b) Debt of the Borrower and its Subsidiaries under the Subordinated Loan Documents;

     (c) Debt existing on the Closing Date that is reflected in the Financial Statements or is disclosed on Schedule 6.02, and any renewals or extensions (but not increases) thereof;

     (d) Accounts payable for the deferred purchase price of Property or services (other than customary trade payables incurred in the ordinary course of business) from time to time incurred in the ordinary course of business which, if greater than 90 days past the date the invoice is received by such Credit Party, are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been established;

     (e) Debt owing by a Credit Party to any other Credit Party which is subordinated to the Obligations pursuant to subordination provisions in form and substance acceptable to the Administrative Agent;

     (f) Debt of the Borrower under Capital Leases not to exceed $5,000,000 at any one time outstanding;

     (g) Debt of the Borrower under Hydrocarbon Hedge Agreements or Interest Hedge Agreements that is made (i) with a Person that is, at the time such Hydrocarbon Hedge Agreement or Interest Hedge Agreement is made, either a Lender or an Affiliate of a Lender, or (ii) with another counterparty rated at least A- or better by S&P or A3 or better by Moody’s, provided that the aggregate notional amounts under all such Hydrocarbon Hedge Agreements (other than Hydrocarbon Hedge Agreement that are floors) do not exceed 80% of the Borrower’s proved, developed, producing Hydrocarbon reserves (as determined in conformity with the guidelines in effect from time to time as promulgated by the Society of Petroleum Engineers or its successor association) to be produced during the term of such Hydrocarbon Hedge Agreements and that such Hydrocarbon Hedge Agreements are entered into as a part of its normal business operations as risk management strategy and/or hedge against changes resulting from market conditions related to the Borrower’s and its Subsidiaries’ operations;

     (h) Debt of the Borrower and its Subsidiaries (i) associated with bonds or surety obligations required by Legal Requirements in connection with the operation of the Oil and Gas Properties and (ii) associated with the financing of insurance premiums;

     (i) Debt of the Borrower described in Schedule 6.02(i) and such other Debt of the Borrower related to the acquisition of software and licensing rights related thereto that does not exceed $500,000 at any one time outstanding;

     (j) Debt of the Borrower with respect to payments in kind of accrued dividends on Preferred Stock of the Borrower held by the Preferred Shareholders; and

     (k) Debt that is not described in subsections (a) through (j) above and that together with all Debt of the Borrower allowed under subsection (i) above does not exceed $5,000,000 at any one time outstanding.

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     Section 6.03 Agreements Restricting Liens and Distributions. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, create, incur, assume or permit to exist any contract, agreement or understanding (other than the Loan Documents and the Subordinated Loan Documents) that in any way prohibits or restricts (a) the granting, conveying, creation or imposition of any Lien on any of its Property, whether now owned or hereafter acquired, to secure the Obligations, except for customary limitations and restrictions contained in, and limited to, specific leases, licenses, conveyances, partnership agreements and co-owners’ agreements, and similar conveyances and agreements or (b) any Subsidiary from paying dividends or making any other distribution to the Borrower, or otherwise transferring assets to the Borrower, or which requires the consent of or notice to other Persons in connection therewith.

     Section 6.04 Merger or Consolidation. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to (a) merge or consolidate with or into any other Person, or (b) sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property to any other Person, except that (i) if either Brigham Exploration or the Borrower is a party to such merger or consolidation, then Brigham Exploration or the Borrower, as the case may be, shall be the continuing Person, (ii) a Subsidiary of the Borrower may merge with or into the Borrower or a wholly owned Subsidiary of the Borrower (provided that if either of such Subsidiaries is a Guarantor, the surviving entity shall be a Guarantor), (iii) a Subsidiary of the Borrower may transfer all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another wholly-owned Subsidiary of the Borrower (provided that if the transferor in such a transaction is a Guarantor, then the transferee must either be the Borrower or a Guarantor), and (iv) a Subsidiary of Brigham Exploration (other than the Borrower and its Subsidiaries) may merge with or into Brigham Exploration or a wholly owned Subsidiary of Brigham Exploration (provided that if either of such Subsidiaries is a Guarantor, the surviving entity shall be a Guarantor), provided in each case that (A) no Event of Default exists or no Default would be caused thereby, and (B) if any Collateral is transferred pursuant to this Section 6.04, the Borrower shall provide the Administrative Agent with ten Business Days’ written notice prior to such transfer, and the Borrower or such Guarantor, as the case may be, owning the Collateral after such transfer shall ratify and confirm the Lien on such Collateral and shall take all action reasonably requested by the Administrative Agent in respect of the continued priority and perfection of the Lien over such Collateral.

     Section 6.05 Sales of Assets. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of its Subsidiaries to, discount or sell (with or without recourse) any of their notes receivable or accounts receivable except in the ordinary course of business. The Borrower shall not, nor shall it permit any of its Subsidiaries to sell, assign, farm-out, convey or otherwise transfer (collectively, a “Disposition”) any Hydrocarbon Interests except for (a) Dispositions of Hydrocarbons in the ordinary course of business, (b) Dispositions of equipment that is no longer necessary for the business of such Person or contemporaneously replaced by equipment of at least comparable value and use, (c) Dispositions permitted under Section 6.04, (d) Dispositions of Properties by a Credit Party to another Credit Party, (e) Dispositions of Oil and Gas Properties made in arm’s length transactions for fair market value, not exceeding $7,500,000 in any period of twelve consecutive calendar months in the aggregate or (f) Dispositions (other than farm-outs) of Non-Proven Reserves made in arm’s length transactions

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for fair market value, not exceeding $7,500,000 in any period of twelve consecutive calendar months in the aggregate, provided that with respect to subsections (c), (d), (e) and (f) of this Section 6.05, no Default or Event of Default has occurred and is continuing or would result from such sale.

     Section 6.06 Restricted Payments. Neither Brigham Exploration nor the Borrower shall make any Restricted Payments except as permitted under Section 6.07(a)(iii).

     Section 6.07 Investments and Acquisitions.

     (a) None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, make or permit to exist any Investment, except:

          (i) Investments, loans or advances reflected in the Financial Statements or that are disclosed to the Lenders in Schedule 6.07;

          (ii) Investments in Cash Equivalents; and

          (iii) Investments by any Credit Party in the Borrower or a Person that is or will become within 10 Business Days after the making of such Investment a Guarantor in accordance with Section 5.12 or that will, within ten (10) Business Days after the making of any such Investment merge or consolidate into such Credit Party, provided, however, that the Borrower may only make Investments to Brigham Exploration or any Partner to pay federal or state taxes owing by any of them, payroll and payroll related taxes and other reasonable general and administrative expenses, or consisting of forgiveness of indebtedness;

     (b) (i) None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, purchase any Oil and Gas Properties not evaluated in the most recently delivered Engineering Report in an aggregate amount in excess of $10,000,000 in any period of twelve consecutive calendar months. (ii) None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, purchase any Properties (other than Oil and Gas Properties) other than in the ordinary course of business in an aggregate amount in excess of $10,000,000 in any period of twelve consecutive calendar months.

     Section 6.08 Affiliate Transactions. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of transactions (including, but not limited to, the purchase, sale, lease or exchange of Property, the making of any investment, the giving of any guaranty, the assumption of any obligation or the rendering of any service) with any of their Affiliates (other than any transaction between the Borrower, any Credit Party, or any Subsidiary of the Borrower) unless such transaction or series of transactions is not in violation of this Agreement and upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm’s length transaction with a Person that is not such an Affiliate.

     Section 6.09 Compliance with ERISA. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, directly or indirectly, (a) engage in, or permit any ERISA Affiliate to engage in, any transaction in connection with which any Credit Party or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to

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section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code in excess of $500,000; (b) terminate, or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result reasonably be expected to result in any liability to any Credit Party or any ERISA Affiliate to the PBGC in excess of $500,000; (c) fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, any Credit Party or any ERISA Affiliate is required to pay as contributions thereto; (d) permit to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency in excess of $500,000 within the meaning of Section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan; (e) permit, or allow any ERISA Affiliate to permit, the actuarial present value of the benefit liabilities (as “actuarial present value of the benefit liabilities” shall have the meaning specified in section 4041 of ERISA) under any Plan maintained by any Credit Party or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities by an amount in excess of $500,000; (f) contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan; (g) acquire, or permit any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to any Credit Party or any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (i) any Multiemployer Plan, or (ii) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities; (h) incur, or permit any ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA which in the aggregate for all such liabilities exceeds $500,000; (i) contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without any material liability; or (j) amend or permit any ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that any Credit Party or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code.

     Section 6.10 Sales and Leasebacks. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, enter into any arrangement, directly or indirectly, with any Person whereby such Credit Party shall sell or transfer any of its Property, whether now owned or hereafter acquired, and whereby such Credit Party shall then or thereafter rent or lease as lessee such Property or any part thereof or other Property which such Credit Party intends to use for substantially the same purpose or purposes as the Property sold or transferred, except for sales and leasebacks of compression, processing, gathering or other similar equipment in an aggregate amount not to exceed $2,000,000 in any period of twelve consecutive calendar months provided that no Default or Event of Default has occurred and is continuing or would result from such sale and leaseback.

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     Section 6.11 Change of Business. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, allow any material change to be made in the character of its business as an independent oil and gas exploration and production company.

     Section 6.12 Use of Proceeds. The Borrower will not permit the proceeds of any Advance or Letters of Credit to be used for any purpose other than those permitted by Section 5.10. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or shall take, any action which might cause any of the Loan Documents to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.

     Section 6.13 Gas Imbalances, Take-or-Pay or Other Prepayments. Except as set forth in Schedule 4.14, the Borrower shall not allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower and its Subsidiaries that would require the Borrower and its Subsidiaries to deliver 2.5% or more of the aggregate calendar quarter production from the Borrower’s and its Subsidiaries’ Hydrocarbons produced on a calendar quarter basis from such Hydrocarbon Interests at some future time without then or thereafter receiving full payment therefor.

     Section 6.14 Additional Subsidiaries. Except as otherwise permitted by Section 6.07, none of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, create any additional Subsidiaries or make any additional Investment in a Subsidiary unless such Credit Party has complied with Section 5.12. Except as otherwise permitted by Section 6.07(a)(iii), no assets may be transferred to a Subsidiary that is not a Guarantor.

     Section 6.15 Limitation on Leases. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, create, incur, assume or suffer to exist any obligation for the payment of rent or hire of Property of any kind whatsoever (real or personal including Capital Leases but excluding leases of Hydrocarbon Interests and the equipment used thereon), under leases or lease agreements that would cause the aggregate amount of all payments made by the Credit Parties and their Subsidiaries pursuant to all such leases or lease agreements to exceed $5,000,000 in any period of twelve consecutive calendar months during the life of such leases.

     Section 6.16 Equity Interests of Partners. Brigham Exploration will not permit any of Equity Interests of any of the Partners to be owned or controlled by any Person other than Brigham Exploration or another Partner, except pursuant to a transaction otherwise permitted under Section 6.04.

     Section 6.17 Change of Name; Fiscal Year; Accounting Method. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, change its name, fiscal year or method of accounting except as required by GAAP; provided, however, any Credit Party may change its name if such Credit Party has given the Administrative Agent at least 30 days’ (unless otherwise consented to by the Administrative Agent) prior written notice

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of such name change and taken such action as the Administrative Agent deems reasonably necessary to continue the perfection of the Liens securing payment of the Obligations.

     Section 6.18 Current Ratio. Brigham Exploration shall not permit the ratio of (a) its consolidated current assets of Brigham Exploration and its consolidated Subsidiaries to (b) their consolidated current liabilities to be less than 1.00 to 1.00 at any time. For purposes of this Agreement, “consolidated current assets” and “consolidated current liabilities” shall be determined in accordance with GAAP, except that (a) consolidated current assets and consolidated current liabilities will be calculated without including any amounts resulting from the application of FASB Statements 133 or 143, (b) the Unused Commitment Amount shall be treated as a consolidated current asset, and (c) consolidated current liabilities will exclude current maturities of long-term debt.

     Section 6.19 Interest Coverage Ratio. Brigham Exploration shall not permit the Interest Coverage Ratio as of the end of any fiscal quarter (calculated quarterly at the end of each fiscal quarter) to be less than 3.0 to 1.0 for each twelve month period ending at the end of each such fiscal quarter.

     Section 6.20 Restrictions on Limited Partners. Brigham Exploration shall not permit either of the Limited Partners to hold any Properties other than the limited partner interests in the Borrower.

     Section 6.21 Subordinated Debt. None of the Credit Parties may make any optional, mandatory or scheduled payments on account of principal (whether by redemption, purchase, retirement, defeasance, set-off or otherwise) in respect of the Subordinated Debt; provided that the Credit Parties may make any such payment (whether by redemption, purchase, retirement, defeasance, set-off or otherwise) so long as (a) no Default or an Event of Default would result or has occurred and is continuing, (b) such payment occurs on or before the first anniversary of the Closing Date and (c) immediately after giving effect to such payment, the aggregate Unused Commitment Amount is greater than or equal to 25% of the Borrowing Base then in effect and in any event, not less than $15,000,000. None of the Credit Parties may make any scheduled payments on account of interest on and fees in respect of the Subordinated Debt if a Default or an Event of Default would result or has occurred and is continuing. None of the Credit Parties may amend, supplement or otherwise modify the terms of the Subordinated Debt, (including, without limitation, the Subordinated Credit Agreement) without the express written consent of the Majority Lenders, which consent will not be unreasonably withheld, which has the effect of (a) increasing the outstanding principal amount of the Subordinated Debt above $20,000,000, provided that the foregoing shall not affect the Borrower’s right to make payment in kind of accrued interest or the ability of the lenders thereunder to accept payment in kind as provided in the Subordinated Credit Agreement, thereby increasing the principal amount of the Subordinated Debt or (b) increasing the rate of interest except with respect to imposing the default rate as provided for in the Subordinated Credit Agreement on the date hereof or any fees charged on the Subordinated Debt.

     Section 6.22 Advance Payment Contracts. None of the Credit Parties will enter into or be a party to any Advance Payment Contract with respect to any Properties.

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ARTICLE VII

EVENTS OF DEFAULT; REMEDIES

     Section 7.01 Events of Default. The occurrence of any of the following events shall constitute an “Event of Default” under any Loan Document:

     (a) Payment. The Borrower shall fail to (i) pay any principal of any Advance or reimburse any drawing under any Letter of Credit when the same becomes due and payable, or (ii) pay any interest on any Note, any fees, reimbursements, indemnifications, or other amounts payable in connection with the Obligations, this Agreement or any of the other Loan Documents within three Business Days after the same becomes due and payable;

     (b) Representation and Warranties. Any representation or warranty made or deemed to be made (i) by any Credit Party in this Agreement or in any other Loan Document, or (ii) by any Credit Party in connection with this Agreement or any other Loan Document, shall prove to have been incorrect in any material and adverse respect when made or deemed to be made;

     (c) Covenant Breaches. Any Credit Party shall fail to perform or observe (i) any covenant contained in Section 2.05(b), Section 5.02(a), Section 5.06(e), Section 5.12, or Article VI of this Agreement or (ii) any other term or covenant set forth in this Agreement or in any other Loan Document which is not covered by clause (i) above or any other provision of this Section 7.01 if such failure shall remain unremedied for 30 days after notice of such breach or failure has been given to the Borrower by the Administrative Agent or any of the Lenders (through the Administrative Agent);

     (d) Cross-Defaults. (i) Any Credit Party shall fail to pay any principal of or premium or interest on its Debt which is outstanding in a principal amount of at least $5,000,000 individually or when aggregated with all such Debt of the Credit Parties so in default (but excluding Debt evidenced by the Notes) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; (ii) any other event shall occur or condition shall exist under any agreement or instrument (including, without limitation, the Subordinated Credit Agreement) relating to Debt which is outstanding in a principal amount of at least $5,000,000 individually or when aggregated with all such Debt of the Credit Parties so in default, and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or (iii) any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment or optional prepayment), prior to the stated maturity thereof;

     (e) Insolvency. Any Credit Party shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Credit Party seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts

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under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against any Credit Party either such proceeding shall remain undismissed for a period of 60 days or any of the actions sought in such proceeding shall occur; or any Credit Party shall take any corporate action to authorize any of the actions set forth above in this paragraph (e);

     (f) Judgments. Any judgment or order for the payment of money in excess of $5,000,000 (excluding liabilities to the extent covered by insurance unless the insurer has disputed that such insurance covers such liabilities) shall be rendered against any Credit Party and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect;

     (g) Loan Documents. Any provision of any Loan Document shall for any reason cease to be in full force and effect and valid, binding and enforceable in all material respects in accordance with their terms or cease in any material respect to create a valid and perfected Lien of the priority required thereby on any of the collateral purported to be covered thereby, except to the extent otherwise permitted by this Agreement, or any Credit Party shall so state in writing;

     (h) Brigham Exploration. Any Change of Control shall occur; or

     (i) Operator. The Borrower ceases to be the primary operating entity for Brigham Exploration and its Subsidiaries and the Borrower and its Subsidiaries cease to be the only Brigham Exploration entities owning Oil and Gas Properties.

     Section 7.02 Optional Acceleration of Maturity. If any Event of Default (other than an Event of Default pursuant to paragraph (e) of Section 7.01) shall have occurred and be continuing, then, and in any such event,

     (a) the Administrative Agent (i) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the Commitments and the obligation of each Lender and the Issuing Lender to make extensions of credit hereunder, including making Advances and issuing Letters of Credit, to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes, and the other Loan Documents to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower;

     (b) the Borrower shall, on demand of the Administrative Agent at the request or with the consent of the Majority Lenders, deposit with the Administrative Agent into the Cash

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Collateral Account an amount of cash equal to the Letter of Credit Exposure as security for the Obligations; and

     (c) the Administrative Agent shall at the request of, or may with the consent of, the Majority Lenders proceed to enforce its rights and remedies under the Security Instruments, this Agreement, and any other Loan Document for the ratable benefit of the Lenders by appropriate proceedings.

     Section 7.03 Automatic Acceleration of Maturity. If any Event of Default pursuant to paragraph (e) of Section 7.01 shall occur,

     (a) (i) the Commitments and the obligation of each Lender and the Issuing Lender to make extensions of credit hereunder, including making Advances and issuing Letters of Credit, shall terminate, and (ii) all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes, and the other Loan Documents shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower;

     (b) the Borrower shall deposit with the Administrative Agent into the Cash Collateral Account an amount of cash equal to the outstanding Letter of Credit Exposure as security for the Obligations; and

     (c) the Administrative Agent shall at the request of, or may with the consent of, the Majority Lenders proceed to enforce its rights and remedies under the Security Instruments, this Agreement, and any other Loan Document for the ratable benefit of the Lenders by appropriate proceedings.

     Section 7.04 Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent, the Issuing Lender and each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Administrative Agent, the Issuing Lender or such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, the Notes held by the Administrative Agent, the Issuing Lender or such Lender, and the other Loan Documents, irrespective of whether or not the Administrative Agent, the Issuing Lender or such Lender shall have made any demand under this Agreement, such Notes, or such other Loan Documents, and although such obligations may be unmatured. The Administrative Agent, the Issuing Lender and each Lender agrees to promptly notify the Borrower after any such set-off and application made by the Administrative Agent, the Issuing Lender or such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent, the Issuing Lender and each Lender under this Section 7.04 are in addition to any other rights and remedies (including, without limitation, other rights of set-off) that the Administrative Agent, the Issuing Lender or such Lender may have.

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     Section 7.05 Non-exclusivity of Remedies. No remedy conferred upon the Administrative Agent, the Issuing Lender and the Lenders is intended to be exclusive of any other remedy, and each remedy shall be cumulative of all other remedies existing by contract, at law, in equity, by statute or otherwise.

     Section 7.06 Application of Proceeds. From and during the continuance of any Event of Default, any monies or property actually received by the Administrative Agent pursuant to this Agreement or any other Loan Document, the exercise of any rights or remedies under any Security Instrument or any other agreement with the Borrower, any Guarantor or any of the Borrower’s Subsidiaries which secures any of the Obligations, shall be applied in the following order:

     (a) First, to the payment of all amounts, including without limitation costs and expenses incurred in connection with the collection of such proceeds and the payment of any part of the Obligations, due to the Administrative Agent under any of the expense reimbursement or indemnity provisions of this Agreement or any other Loan Document, any Security Instrument or other collateral documents, and any applicable law;

     (b) Second, to the ratable payment of accrued but unpaid fees of the Administrative Agent, commitment fees, letter of credit fees, and fronting fees owing to the Administrative Agent, the Issuing Lender, and the Lenders in respect of the Advances and Letters of Credit under this Agreement and the Notes;

     (c) Third, to the ratable payment of accrued but unpaid interest on the Advances owing under this Agreement and the Notes;

     (d) Fourth, ratably, according to the then unpaid amounts thereof, without preference or priority of any kind among them, to the ratable payment of all other Obligations then due and payable which relate to Advances and Letters of Credit and which are owing to the Administrative Agent and the Lenders and to the payment of all obligations of the Borrower or its Subsidiaries owing to any Swap Counterparty under any Interest Hedge Agreement or Hydrocarbon Hedge Agreement, if any, then due and payable; and

     (e) Fifth, the remainder, if any, to the Borrower or its Subsidiaries, or its respective successors or assigns, or such other Person as may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

ARTICLE VIII

THE GUARANTY

     Section 8.01 Liabilities Guaranteed. Each Guarantor hereby, joint and severally, irrevocably and unconditionally guarantees the prompt payment at maturity of the Obligations.

     Section 8.02 Nature of Guaranty. This guaranty is an absolute, irrevocable, completed and continuing guaranty of payment and not a guaranty of collection, and no notice of the Obligations or any extension of credit already or hereafter contracted by or extended to the Borrower need be given to any Guarantor. This guaranty may not be revoked by any Guarantor

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and shall continue to be effective with respect to the Obligations arising or created after any attempted revocation by such Guarantor and shall remain in full force and effect until the Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto no Obligations may be outstanding. The Borrower and the Lenders may modify, alter, rearrange, extend for any period and/or renew from time to time, the Obligations, and the Lenders may waive any Default or Events of Default without notice to any Guarantor and in such event each Guarantor will remain fully bound hereunder on the Obligations. This guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of the Obligations is rescinded or must otherwise be returned by any of the Lenders upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. This guaranty may be enforced by the Administrative Agent and any subsequent holder of any of the Obligations and shall not be discharged by the assignment or negotiation of all or part of the Obligations. Each Guarantor hereby expressly waives presentment, demand, notice of non-payment, protest and notice of protest and dishonor, notice of Default or Event of Default, and also notice of acceptance of this guaranty, acceptance on the part of the Lenders being conclusively presumed by the Lenders’ request for this guaranty and the Guarantors’ being party to this Agreement.

     Section 8.03 Agent’s Rights. Each Guarantor authorizes the Administrative Agent, without notice or demand and without affecting any Guarantor’s liability hereunder, to take and hold security for the payment of its obligations under this Article VIII and/or the Obligations, and exchange, enforce, waive and release any such security; and to apply such security and direct the order or manner of sale thereof as the Administrative Agent in its discretion may determine, and to obtain a guaranty of the Obligations from any one or more Persons and at any time or times to enforce, waive, rearrange, modify, limit or release any of such other Persons from their obligations under such guaranties.

     Section 8.04 Guarantor’s Waivers.

     (a) General. Each Guarantor waives any right to require any of the Lenders to (i) proceed against the Borrower or any other person liable on the Obligations, (ii) enforce any of their rights against any other guarantor of the Obligations, (iii) proceed or enforce any of their rights against or exhaust any security given to secure the Obligations, (iv) have the Borrower joined with any Guarantor in any suit arising out of this Article VIII and/or the Obligations, or (v) pursue any other remedy in the Lenders’ powers whatsoever. The Lenders shall not be required to mitigate damages or take any action to reduce, collect or enforce the Obligations. Guarantor waives any defense arising by reason of any disability, lack of corporate authority or power, or other defense of the Borrower or any other guarantor of the Obligations, and shall remain liable hereon regardless of whether the Borrower or any other guarantor be found not liable thereon for any reason. Whether and when to exercise any of the remedies of the Lenders under any of the Loan Documents shall be in the sole and absolute discretion of the Administrative Agent, and no delay by the Administrative Agent in enforcing any remedy, including delay in conducting a foreclosure sale, shall be a defense to any Guarantor’s liability under this Article VIII.

     (b) Subrogation. Until the Obligations have been paid in full, each Guarantor waives all rights of subrogation or reimbursement against the Borrower, whether arising by contract or

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operation of law (including, without limitation, any such right arising under any federal or state bankruptcy or insolvency laws) and waives any right to enforce any remedy which the Lenders now have or may hereafter have against the Borrower, and waives any benefit or any right to participate in any security now or hereafter held by the Administrative Agent or any Lender.

     Section 8.05 Maturity of Obligations, Payment. Each Guarantor agrees that if the maturity of any of the Obligations is accelerated by bankruptcy or otherwise, such maturity shall also be deemed accelerated for the purpose of this Article VIII without demand or notice to any Guarantor. Each Guarantor will, forthwith upon notice from the Administrative Agent, jointly and severally pay to the Administrative Agent the amount due and unpaid by the Borrower and guaranteed hereby. The failure of the Administrative Agent to give this notice shall not in any way release any Guarantor hereunder.

     Section 8.06 Agent’s Expenses. If any Guarantor fails to pay the Obligations after notice from the Administrative Agent of the Borrower’s failure to pay any Obligations at maturity, and if the Administrative Agent obtains the services of an attorney for collection of amounts owing by any Guarantor hereunder, or obtaining advice of counsel in respect of any of their rights under this Article VIII, or if suit is filed to enforce this Article VIII, or if proceedings are had in any bankruptcy, probate, receivership or other judicial proceedings for the establishment or collection of any amount owing by any Guarantor hereunder, or if any amount owing by any Guarantor hereunder is collected through such proceedings, each Guarantor jointly and severally agrees to pay to the Administrative Agent the Administrative Agent’s reasonable attorneys’ fees.

     Section 8.07 Liability. It is expressly agreed that the liability of each Guarantor for the payment of the Obligations guaranteed hereby shall be primary and not secondary.

     Section 8.08 Events and Circumstances Not Reducing or Discharging any Guarantor’s Obligations. Each Guarantor hereby consents and agrees to each of the following to the fullest extent permitted by law, and agrees that each Guarantor’s obligations under this Article VIII shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any rights (including without limitation rights to notice) which each Guarantor might otherwise have as a result of or in connection with any of the following:

     (a) Modifications, etc. Any renewal, extension, modification, increase, decrease, alteration or rearrangement of all or any part of the Obligations, or of the Notes, or this Agreement or any instrument executed in connection therewith, or any contract or understanding between the Borrower and any of the Lenders, or any other Person, pertaining to the Obligations;

     (b) Adjustment, etc. Any adjustment, indulgence, forbearance or compromise that might be granted or given by any of the Lenders to the Borrower or any Guarantor or any Person liable on the Obligations;

     (c) Condition of the Borrower or any Guarantor. The insolvency, bankruptcy arrangement, adjustment, composition, liquidation, disability, dissolution, death or lack of power of the Borrower or any Guarantor or any other Person at any time liable for the payment of all or part of the Obligations; or any dissolution of the Borrower or any Guarantor, or any sale, lease or

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transfer of any or all of the assets of the Borrower or any Guarantor, or any changes in the shareholders, partners, or members of the Borrower or any Guarantor; or any reorganization of the Borrower or any Guarantor;

     (d) Invalidity of Obligations. The invalidity, illegality or unenforceability of all or any part of the Obligations, or any document or agreement executed in connection with the Obligations, for any reason whatsoever, including without limitation the fact that the Obligations, or any part thereof, exceed the amount permitted by law, the act of creating the Obligations or any part thereof is ultra vires, the officers or representatives executing the documents or otherwise creating the Obligations acted in excess of their authority, the Obligations violate applicable usury laws, the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Obligations wholly or partially uncollectible from the Borrower, the creation, performance or repayment of the Obligations (or the execution, delivery and performance of any document or instrument representing part of the Obligations or executed in connection with the Obligations, or given to secure the repayment of the Obligations) is illegal, uncollectible, legally impossible or unenforceable, or this Agreement or other documents or instruments pertaining to the Obligations have been forged or otherwise are irregular or not genuine or authentic;

     (e) Release of Obligors. Any full or partial release of the liability of the Borrower on the Obligations or any part thereof, of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Obligations or any part thereof, it being recognized, acknowledged and agreed by any Guarantor that such Guarantor may be required to pay the Obligations in full without assistance or support of any other Person, and no Guarantor has been induced to enter into this Article VIII on the basis of a contemplation, belief, understanding or agreement that other parties other than the Borrower will be liable to perform the Obligations, or the Lenders will look to other parties to perform the Obligations.

     (f) Other Security. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Obligations;

     (g) Release of Collateral etc. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security, at any time existing in connection with, or assuring or securing payment of, all or any part of the Obligations;

     (h) Care and Diligence. The failure of the Lenders or any other Person to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security;

     (i) Status of Liens. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Obligations shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that no Guarantor is entering into this Article VIII in reliance on, or in contemplation

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of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Obligations;

     (j) Payments Rescinded. Any payment by the Borrower to the Lenders is held to constitute a preference under the bankruptcy laws, or for any reason the Lenders are required to refund such payment or pay such amount to the Borrower or someone else; or

     (k) Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to this Agreement, the Obligations, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Obligations pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that each Guarantor shall be obligated to joint and severally pay the Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, except for the full and final payment and satisfaction of the Obligations.

     Section 8.09 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of the Borrower or any Subsidiary of the Borrower to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligation of the Borrower or such Subsidiary thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include without limitation all rights and claims of any Guarantor against the Borrower or any Subsidiary of the Borrower arising as a result of subrogation or otherwise as a result of such Guarantor’s payment of all or a portion of the Obligations. Until the Obligations shall be paid and satisfied in full and each Guarantor shall have performed all of its obligations hereunder, no Guarantor shall receive or collect, directly or indirectly, from the Borrower or any Subsidiary of the Borrower or any other party any amount upon the Guarantor Claims during the occurrence and continuance of an Event of Default.

     Section 8.10 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving the Borrower or any Subsidiary of the Borrower, as debtor, the Lenders shall have the right to prove their claim in any proceeding, so as to establish their rights hereunder and receive directly from the receiver, trustee or other court custodian, dividends and payments which would otherwise be payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to the Lenders. Should the Administrative Agent or any Lender receive, for application upon the Obligations, any such dividend or payment which is otherwise payable to any Guarantor, and which, as between the Borrower or any Subsidiary of the Borrower and any Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment in full of the Obligations, such Guarantor shall become subrogated to the rights of the Lenders to the extent that such payments to the Lenders on the Guarantor Claims have contributed toward the liquidation of the Obligations, and such subrogation shall be with respect to that proportion of the Obligations

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which would have been unpaid if the Administrative Agent or a Lender had not received dividends or payments upon the Guarantor Claims.

     Section 8.11 Payments Held in Trust. In the event that notwithstanding Sections 8.09 and 8.10 above, any Guarantor should receive any funds, payments, claims or distributions which is prohibited by such Sections, such Guarantor agrees to hold in trust for the Lenders an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions except to pay them promptly to the Administrative Agent, and each Guarantor covenants promptly to pay the same to the Administrative Agent.

     Section 8.12 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon the Borrower’s or any Subsidiary of the Borrower’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon the Borrower’s or any Subsidiary of the Borrower’s assets securing payment of the Obligations, regardless of whether such encumbrances in favor of any Guarantor, the Administrative Agent or the Lenders presently exist or are hereafter created or attach.

     Section 8.13 Guarantor’s Enforcement Rights. Without the prior written consent of the Lenders, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against the Borrower or any Subsidiary of the Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceeding (judicial or otherwise, including without limitation the commencement of or joinder in any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any lien, mortgages, deeds of trust, security interest, collateral rights, judgments or other encumbrances on assets of the Borrower or any Subsidiary of the Borrower held by Guarantor.

ARTICLE IX

THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER

     Section 9.01 Authorization and Action. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof and of the other Loan Documents, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Loan Document (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, any other Loan Document, or applicable law.

     Section 9.02 Administrative Agent’s Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents, or employees shall be liable for any action taken or

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omitted to be taken (including the Administrative Agent’s own negligence) by it or them under or in connection with this Agreement or the other Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Administrative Agent; (b) may consult with legal counsel (including counsel for any Credit Party), independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations made in or in connection with this Agreement or the other Loan Documents; (d) shall not, except with respect to Administrative Agent’s receipt of payments due hereunder, have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of any Credit Party or to inspect the property (including the books and records) of any Credit Party; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other Loan Document; and (f) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate, or other instrument or writing (which may be by telecopier or telex) believed by it to be genuine and signed or sent by the proper party or parties.

     Section 9.03 The Administrative Agent and Its Affiliates. With respect to its Commitments, the Advances made by it and the Notes issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent. The term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include the Administrative Agent in its individual capacity. The Administrative Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, any Credit Party, and any Person who may do business with or own securities of any Credit Party, all as if the Administrative Agent were not an agent hereunder and without any duty to account therefor to the Lenders.

     Section 9.04 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the Financial Statements and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it shall, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

     Section 9.05 Indemnification. The Lenders severally agree to indemnify the Administrative Agent and the Issuing Lender and each Affiliate thereof and their respective directors, officers, employees, and agents (to the extent not reimbursed by the Credit Parties), according to their respective Pro Rata Shares from and against any and all liabilities, obligations, losses, damages, penalties,

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actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent and the Issuing Lender in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent or the Issuing Lender under this Agreement or any other Loan Document (including the Administrative Agent’s and the Issuing Lender’s own negligence), and including, without limitation, environmental liabilities, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from the Administrative Agent’s or the Issuing Lender’s gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent and the Issuing Lender promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent or the Issuing Lender in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings, or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Loan Document, to the extent that the Administrative Agent or the Issuing Lender is not reimbursed for such by the Credit Parties, provided that no Lender shall be liable for any portion of such out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent or the Issuing Bank as a result of the Administrative Agent’s or the Issuing Lender’s gross negligence or willful misconduct.

     Section 9.06 Successor Administrative Agent and Issuing Lender. The Administrative Agent or the Issuing Lender may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders upon receipt of written notice from the Majority Lenders to such effect. Upon receipt of notice of any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent or Issuing Lender with, if any Event of Default has not occurred and is not continuing, the consent of the Borrower, which consent shall not be unreasonably withheld. If no successor Administrative Agent or Issuing Lender shall have been so appointed by the Majority Lenders with the consent of the Borrower, and shall have accepted such appointment, within 30 days after the resigning Administrative Agent’s or Issuing Lender’s giving of notice of resignation or the Majority Lenders’ removal of the resigning Administrative Agent or Issuing Lender, then the resigning Administrative Agent or Issuing Lender may, on behalf of the Lenders and the Borrower, appoint a successor Administrative Agent or Issuing Lender, which shall be, in the case of a successor agent, a Lender or any other commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000.00 and, in the case of the Issuing Lender, a Lender. Upon the acceptance of any appointment as Administrative Agent or Issuing Lender by a successor Administrative Agent or Issuing Lender, such successor Administrative Agent or Issuing Lender shall thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the resigning Administrative Agent or Issuing Lender, and the resigning Administrative Agent or Issuing Lender shall be discharged from its duties and obligations under this Agreement and the other Loan Documents, except that the resigning Issuing Lender shall remain the Issuing Lender with respect to any Letters of Credit outstanding on the Closing Date

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of its resignation or removal and the provisions affecting the Issuing Lender with respect to such Letters of Credit shall inure to the benefit of the resigning Issuing Lender until the termination of all such Letters of Credit. After any resigning Administrative Agent’s or Issuing Lender’s resignation or removal hereunder as Administrative Agent or Issuing Lender, the provisions of this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or Issuing Lender under this Agreement and the other Loan Documents.

     Section 9.07 Other Agents. None of the Lead Arranger, any Co-Arrangers, the Documentation Agent or the Syndication Agent, in such respective capacities, shall have any duties or responsibilities, or incur any liabilities, under this Agreement or the other Loan Documents.

     Section 9.08 Collateral Matters.

     (a) The Administrative Agent is authorized on behalf of the Lenders, without the necessity of any notice to or further consent from the Lenders, from time to time, to take any actions with respect to any Collateral or Security Instruments which may be necessary to perfect and maintain Acceptable Security Interests in and Liens upon the Collateral granted pursuant to the Security Instruments. The Administrative Agent is further authorized on behalf of the Lenders, without the necessity of any notice to or further consent from the Lenders, from time to time, to take any action in exigent circumstances as may be reasonably necessary to preserve any rights or privileges of the Lenders under the Loan Documents or applicable Legal Requirements.

     (b) Each of the Lenders irrevocably authorizes the Administrative Agent to release any Lien granted to or held by the Administrative Agent upon any Collateral (i) upon termination of the Commitments and payment in full of all outstanding Advances and all other Obligations payable under this Agreement and under any other Loan Document; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted under this Agreement or the other Loan Documents; (iii) constituting property in which any Credit Party owned no interest at the time the Lien was granted or at any time thereafter; (iv) constituting Oil and Gas Properties to which no Proven Reserves are attributed that currently are encumbered under the Mortgage Amendments; (v) if approved, authorized or ratified in writing by the Majority Lenders or all the Lenders, as the case may be, as required by Section 10.01 or (vi) as otherwise permitted by this Agreement. Upon the request of the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent’s authority to release particular types or items of Collateral pursuant to this Section 9.08. The Administrative Agent hereby agrees, from time to time upon the prior written request of the Borrower, to execute and deliver such releases and/or termination documents as may be necessary to effectively release any and all of the Liens granted to or held by the Administrative Agent upon any Collateral described in this Section 9.08(b).

     (c) The powers conferred on the Administrative Agent under this Agreement and the other Security Instruments are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the reasonable care of any Collateral in its possession and the accounting for monies or other property actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or as to the taking of any

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necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Administrative Agent shall be deemed to have exercised reasonable care as to the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Administrative Agent accords its own property, provided that the Administrative Agent shall have no responsibility for taking any necessary steps to preserve rights against any parties with respect to any Collateral.

ARTICLE X

MISCELLANEOUS

     Section 10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement, the Notes, or any other Loan Document, nor consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that:

     (a) no amendment, waiver, or consent shall, unless in writing and signed by all of the Lenders and the Borrower, do any of the following:

          (i) waive any of the conditions specified in Section 3.01 or 3.02;

          (ii) increase the Commitments of the Lenders;

          (iii) change the percentage of Lenders which shall be required for the Lenders or any of them to take any action hereunder or under any other Loan Document;

          (iv) amend Section 2.11 or this Section 10.01;

          (v) amend the definition of “Majority Lenders”;

          (vi) release any Guarantor from its obligations under Article VIII of this Agreement;

          (vii) permit any Credit Party to enter into any merger or consolidation with or into any other Person, except as permitted by Section 6.04, that would have the effect of releasing the Borrower or a Guarantor;

          (viii) release any Collateral, except for releases of Collateral in connection with dispositions permitted by this Agreement;

          (ix) increase the Borrowing Base;

          (x) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder or under any other Loan Document to or for the benefit of the Lenders;

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          (xi) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder or extend the Maturity Date or the Commitment Termination Date; or

          (xii) amend or waive any provision of, nor consent to any departure by any party thereto from the Intercreditor and Subordination Agreement to (A) permit any payment otherwise prohibited under the Intercreditor and Subordination Agreement, (B) amend or change the priority of any lien governed thereby or (C) the subordination provisions thereof;

     (b) no amendment, waiver, or consent shall, unless in writing and signed by the Majority Lenders, decrease the Borrowing Base; and

     (c) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent or the Issuing Lender in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent or the Issuing Lender, as the case may be, under this Agreement or any other Loan Document.

Notwithstanding any of the foregoing provisions of this Section 10.01, the Administrative Agent may release Collateral relating to sales or transfers of property permitted under this Agreement or any other Loan Document; provided, however, in no event shall Administrative Agent release all or substantially all of the Collateral without the prior written consent of each of the Lenders.

     Section 10.02 Notices, Etc. All notices and other communications shall be in writing (including, without limitation, telecopy or telex) and mailed by certified mail, return receipt requested, telecopied, telexed, hand delivered, or delivered by a nationally recognized overnight courier, at the address for the appropriate party specified in Schedule 1 or at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when so mailed, telecopied, telexed, or hand delivered or delivered by a nationally recognized overnight courier, be effective when received if mailed, when telecopy transmission is completed, when confirmed by telex answer-back, or when delivered by such messenger or courier, respectively, except that notices and communications to the Administrative Agent pursuant to Article II, IX or X shall not be effective until received by the Administrative Agent.

     Section 10.03 No Waiver; Remedies. No failure on the part of any Lender, the Administrative Agent, or the Issuing Lender to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

     Section 10.04 Costs and Expenses. The Borrower agrees to pay on demand (a) all reasonable out-of-pocket costs and expenses of the Lead Arranger and the Administrative Agent in connection with the preparation, execution, delivery, modification, and amendment of this Agreement, the Notes, and the other Loan Documents including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement,

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and (b) all out-of-pocket costs and expenses, if any, of the Administrative Agent, the Issuing Lender, and each Lender (including, without limitation, reasonable counsel fees and expenses of the Administrative Agent, the Issuing Lender, and each Lender) in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of this Agreement, the Notes, and the other Loan Documents.

     Section 10.05 Binding Effect. This Agreement shall become effective when it shall have been executed by each of the Credit Parties and the Administrative Agent, and when the Administrative Agent shall have, as to each Lender, either received a counterpart hereof executed by such Lender or been notified by such Lender that such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Credit Parties, the Administrative Agent, the Issuing Lender, and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or delegate its duties under this Agreement or any interest in this Agreement without the prior written consent of each Lender.

     Section 10.06 Lender Assignments and Participations.

     (a) Assignments. Any Lender may assign to one or more banks or other entities all or any portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it, the Notes held by it, and the participation interest in the Letter of Credit Obligations held by it); provided, however, that (i) the amount of the Commitments and Advances of such Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall be, if to an entity other than a Lender, not less than $5,000,000.00, (ii) each such assignment shall be to an Eligible Assignee, (iii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with the Notes subject to such assignment, and (iv) each Eligible Assignee (other than an Eligible Assignee that is a Lender or an Affiliate of a Lender) shall pay to the Administrative Agent a $3,500 administrative fee. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least three Business Days after the execution thereof unless otherwise waived by the Administrative Agent in its sole discretion, (A) the assignee thereunder shall be a party hereto for all purposes and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) such Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of such Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

     (b) Term of Assignments. By executing and delivering an Assignment and Acceptance, the Lender thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency of value

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of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or the performance or observance by the Borrower or its Subsidiaries of any of their obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recently delivered financial statements pursuant to Section 5.06 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

     (c) The Register. The Administrative Agent shall maintain at its address referred to in Section 10.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Advances owing to, each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and each of the Credit Parties, the Administrative Agent, the Issuing Lender, and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

     (d) Procedures. Upon its receipt of an Assignment and Acceptance executed by a Lender and an Eligible Assignee, together with the Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of the attached Exhibit A, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower shall execute and deliver to the Administrative Agent in exchange for the surrendered Notes (A) if such Eligible Assignee has acquired a Commitment, a new Note to the order of such Eligible Assignee in an amount equal to such Commitment assumed by it pursuant to such Assignment and Acceptance and (B) if such Lender has retained any Commitment hereunder, a new Note to the order of such Lender in an amount equal to the Commitment retained by it hereunder. Such new Note shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the attached Exhibit E.

     (e) Participations. Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it, its participation interest in the Letter of Credit Obligations, and the Notes held by it); provided, however, that (i) such Lender’s obligations under this Agreement (including, without limitation,

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its Commitments to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Notes for all purposes of this Agreement, (iv) the Credit Parties, the Administrative Agent, and the Issuing Lender and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement, and (v) such Lender shall not require the participant’s consent to any matter under this Agreement, except for change in the principal amount of the Notes, reductions in fees or interest, releasing all or substantially all of any Collateral or Brigham Exploration or the General Partner as a Guarantor, permitting any Credit Party to enter into any merger or consolidation with or into any other (except as permitted hereby), postponement of any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, or extensions of either the Maturity Date or the Commitment Termination Date. The Borrower hereby agrees that participants shall have the same rights under Sections 2.12, 2.13, 2.14, and 10.07 as a Lender to the extent of their respective participations.

     Section 10.07 Indemnification. The Borrower shall indemnify the Arrangers, the Agents, the Lenders, the Issuing Lender, and each Affiliate thereof and their respective directors, officers, employees, and agents from, and discharge, release, and hold each of them harmless against, any and all losses, liabilities, claims, or damages which may be imposed on, incurred by, or asserted against them in any way relating to or arising out of this Agreement or any action taken or omitted by them under this Agreement or any other Loan Document (including any such losses, liabilities, claims, damages, or expense incurred by reason of the person being indemnified’s own negligence or strict liability) and including without limitation Environmental Liabilities, but excluding any such losses, liabilities, claims, damages, or expenses incurred by reason of the gross negligence or willful misconduct of the person to be indemnified.

     Section 10.08 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

     Section 10.09 Survival of Representations, Etc. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of this Agreement and the Loan Documents, the making of the Advances and any investigation made by or on behalf of the Lenders, none of which investigations shall diminish any Lender’s right to rely on such representations and warranties. All obligations of the Borrower provided for in Sections 2.12, 2.13, 2.14(c), 10.04, and 10.07 and all of the obligations of the Lenders in Section 9.05 shall survive any termination of this Agreement and repayment in full of the Obligations.

     Section 10.10 Severability. In case one or more provisions of this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality, and enforceability of the remaining provisions contained herein or therein shall not be affected or impaired thereby.

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     Section 10.11 Governing Law. Except as otherwise expressly stated in any Security Instrument, this Agreement, the Notes and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. Each Letter of Credit shall be governed by either (a) the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 (or any successor to such publication) or (b) the International Standby Practices 1998, Institute of International Banking Law & Practice (or any successor to such publication).

     Section 10.12 Submission To Jurisdiction; Waivers. The Borrower and each Guarantor hereby irrevocably and unconditionally:

     (A) submits for itself and its Property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof;

     (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

     (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at its address set forth in subsection 10.02 or at such other address of which the Administrative Agent shall have been notified pursuant thereto;

     (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

     (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages.

     Section 10.13 Waiver of Jury Trial. Each of the Credit Parties, the Lenders, the Issuing Lender, the Arrangers and the Agents hereby acknowledges that it has been represented by and has consulted with counsel of its choice, and hereby knowingly, voluntarily, intentionally, and irrevocably waives any and all right to trial by jury in respect of any legal proceeding arising out of or relating to this Agreement, any other Loan Document, or any of the transactions contemplated hereby or thereby.

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     Section 10.14 Oral Agreements. This Agreement and the Loan Documents represent the final agreement among the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements among the parties hereto.

     Section 10.15 Dissemination of Information. Each of the Agents and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) to the extent requested by any Governmental Authority in connection with banking regulations or supervision; (c) to the extent required by applicable Legal Requirements or by any subpoena or similar legal process; (d) to any other party to this Agreement; (e) to the extent required, in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder; (f) subject to an agreement for the benefit of the Credit Parties containing provisions substantially the same as those of this Section 10.15 or any other confidentiality obligation referred to herein, to (i) any participant or Eligible Assignee or any other Person acquiring an interest in the Loan Documents (each a “Transferee”) and any prospective Transferee or (ii) any direct or indirect contractual counterparty or prospective counterparty (or such contractual counterparty’s or prospective counterparty’s professional advisor) to any credit derivative transaction relating to obligations of Credit Parties; (g) with the prior written consent of the Borrower; or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to any Agent or Lender on a nonconfidential basis from a source other than any Credit Party. In addition, any Agent or any Lender may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry, and service providers to the Agents and the Lenders in connection with the administration and management of this Agreement, the other Loan Documents, and the Advances. For the purposes of this Section, “Information” means all information received from, or on behalf of, any Credit Parties relating to any Credit Party or their business, other than any such information that is available to any Agent or any Lender on a nonconfidential basis prior to disclosure by any Credit Party; provided that, in the case of information received from any Credit Party after the date hereof, such information is clearly identified in writing at the time of delivery as confidential; provided, however, that notwithstanding the foregoing, each Engineering Report shall be deemed to be confidential regardless of whether such Engineering Report is identified in writing at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

     Section 10.16 Production Proceeds. Notwithstanding that, by the terms of the various Security Instruments, the Credit Parties are and will be assigning to the Administrative Agent and the Lenders all of the “Production Proceeds” (as defined therein) accruing to the Property covered thereby, so long as no Event of Default has occurred the Credit Parties may continue to receive from the purchasers of production all such Production Proceeds, subject, however, to the Liens created under the Security Instruments, which Liens are hereby affirmed and ratified.

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Upon the occurrence of an Event of Default, the Administrative Agent and the Lenders may exercise all rights and remedies granted under the Security Instruments, including the right to obtain possession of all Production Proceeds then held by the Credit Parties or to receive directly from the purchasers of production all other Production Proceeds. In no case shall any failure, whether intentional or inadvertent, by the Administrative Agent or the Lenders to collect directly any such Production Proceeds constitute in any way a waiver, remission or release of any of their rights under the Security Instruments, nor shall any release of any Production Proceeds by the Administrative Agent or the Lenders to the Credit Parties constitute a waiver, remission, or release of any other Production Proceeds or of any rights of the Administrative Agent or the Lenders to collect other Production Proceeds thereafter.

     Section 10.17 Replacement of Lenders. If any Lender (a) requests compensation under Section 2.13, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, (b) defaults in its obligation to fund Advances hereunder, or (c) fails to consent to an election, consent, amendment, waiver or other modification to this Agreement or any other Loan Document that requires the consent of a greater percentage of the Lenders than the Majority Lenders and such election, consent, amendment, waiver or other modification is otherwise consented to by the Majority Lenders, then the Borrower may, at its sole expenses and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

          (i) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 10.06;

          (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and Reimbursement Obligations, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

          (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments thereafter; and

          (iv) such assignment does not conflict with applicable Legal Requirement.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

     Section 10.18 Amendment and Restatement. The Borrower, the Agents and the Lenders have agreed that this Agreement is an amendment and restatement of the Existing Senior Credit Agreement in its entirety and the terms and provisions hereof supersede the terms and provisions

85

thereof, and this Agreement is not a new or substitute credit agreement or novation of the Existing Senior Credit Agreement.

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     EXECUTED as of the date first above written.

BORROWER: BRIGHAM OIL & GAS, L.P.
By:	Brigham, Inc., its General Partner

By:	/s/ Eugene B. Shepherd, Jr.
	Eugene B. Shepherd, Jr.
	Executive Vice President and
	Chief Financial Officer

GUARANTORS: BRIGHAM EXPLORATION COMPANY
By:	/s/ Eugene B. Shepherd, Jr.
	Eugene B. Shepherd, Jr.
	Executive Vice President and
	Chief Financial Officer

BRIGHAM, INC.
By:	/s/ Eugene B. Shepherd, Jr.
	Eugene B. Shepherd, Jr.
	Executive Vice President and
	Chief Financial Officer

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ADMINISTRATIVE AGENT: SOCIETE GENERALE as Lead Arranger, Administrative Agent and as Issuing Lender
By:	/s/ Graeme Bullen
	Graeme Bullen
	Vice President

LENDERS: SOCIETE GENERALE
By:	/s/ Graeme Bullen
	Graeme Bullen
	Vice President

THE ROYAL BANK OF SCOTLAND plc
By:	/s/ Phillip Ballard
	Phillip Ballard
	Senior Vice President

BANK OF AMERICA, N.A.
By:	/s/ Jeffrey H. Rathkamp
Name:	Jefferey H. Rathkamp
Title:	Director

HIBERNIA NATIONAL BANK
By:	/s/ David R. Reid
Name:	David R. Reid
Title:	Senior Vice President

NATEXIS BANQUES POPULAIRES
By:	/s/ Donovan C. Broussard
Name:	Donovan C. Broussard
Title:	Vice President & Manager

By:	/s/ Louis P. Laville, III
Name:	Louis P. Laville, III
Title:	Vice President & Manager

2

EXHIBIT A

ASSIGNMENT AND ACCEPTANCE

Dated ________________, ______

     Reference is made to the Third Amended and Restated Credit Agreement dated as of January 21, 2005 (as the same may be amended or modified from time-to-time, the “Credit Agreement”) among Brigham Oil & Gas, L.P., a Delaware limited partnership (the “Borrower”), Brigham Exploration Company, a Delaware corporation, Brigham, Inc., a Nevada corporation, the lenders party thereto (the “Lenders”), and Société Générale, as administrative agent (“Administrative Agent”) and as issuing lender (“Issuing Lender”) for the Lenders. Capitalized terms not otherwise defined in this Assignment and Acceptance shall have the meanings assigned to them in the Credit Agreement.

     Pursuant to the terms of the Credit Agreement,                      wishes to assign and delegate ___%¹ of its rights and obligations under the Credit Agreement. Therefore,                      (“Assignor”),                      (“Assignee”), and the Administrative Agent agree as follows:

     1. The Assignor hereby sells and assigns and delegates to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, without recourse to the Assignor and without representation or warranty except for the representations and warranties specifically set forth in clauses (i) and (ii) of Section 2 of this Assignment and Acceptance, a ___% interest in and to all of the Assignor’s rights and obligations under the Credit Agreement as of the Effective Date (as defined below), including, without limitation, such percentage interest in the Assignor’s Commitment, the Advances owing to the Assignor, the Assignor’s Letter of Credit Exposure, and the Note held by the Assignor.

     2. The Assignor (i) represents and warrants that, prior to executing this Assignment and Acceptance, its Commitment is $                      , the aggregate outstanding principal amount of Advances owed to it by the Borrower is $                      , and its Pro Rata Share of the Letter of Credit Exposure is $                      ; (ii) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in, or in connection with, the Credit Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of the Credit Agreement or any other Loan Document or any other instrument or document furnished pursuant thereto; (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or the performance or observance by any Credit Party of any of its respective obligations under the Credit Agreement or any other Loan Document or any other instrument or document furnished pursuant thereto; and (v) attaches the Note referred to in paragraph 1 above

¹Specify percentage in no more than 5 decimal points.

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and requests that the Administrative Agent exchange such Note for a new Note dated                      , ___in the principal amount of $                      payable to the order of the Assignee and [a new Note dated                      , ___in the principal amount of $                      payable to the order of the Assignor.]

     3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements referred to in Section 5.06 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor, or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement or any other Loan Document; (iii) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and any other Loan Document as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement or any other Loan Document are required to be performed by it as a Lender; (v) specifies as its Domestic Lending Office (and address for notices) the office set forth beneath its name on the signature pages hereof; (vi) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee’s status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and the Notes or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty², and (vii) represents that it is an Eligible Assignee.

     4. The effective date for this Assignment and Acceptance shall be                      (the “Effective Date”)³ and following the execution of this Assignment and Acceptance, the Administrative Agent will record it.

     5. Upon such recording, and as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement for all purposes, and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.

     6. Upon such recording, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement and the Note in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest, letter of credit fees and commitment fees) to the Assignee. The Assignor and Assignee shall make all

²If the Assignee is organized under the laws of a jurisdiction outside the United States.

³See Section 10.06(a) of the Credit Agreement. Such date shall be at least three Business Days after the date of this Assignment and Acceptance, unless otherwise waived by the Administrative Agent in its sole discretion.

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appropriate adjustments in payments under the Credit Agreement and the Note for periods prior to the Effective Date directly between themselves.

     7. This Assignment and Acceptance shall be governed by, and construed and enforced in accordance with, the laws of the State of New York.

     The parties hereto have caused this Assignment and Acceptance to be duly executed as of the date first above written.

[ASSIGNOR]

By:

Name:

Title:

Address:

Attention:

Telecopy No: (XXX) XXX-XXXX

[ASSIGNEE]

By:

Name:

Title:

Lending Office

Address:

Attention:

Telecopy No: (XXX) XXX-XXXX

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Acknowledged [and approved]⁴ this ___day of                      ,

200___:

SOCIÉTÉ GÉNÉRALE,
as Administrative Agent

By:                                                                                                        
Name:                                                                                                      
Title:                                                                                                      

[Approved this ___day of                      , 200_:

BRIGHAM OIL & GAS, L.P.

By:      Brigham, Inc., its general partner

           By:                                                                                  
           Name:                                                             
           Title:                                                             ] ⁵

4	Approval of Administrative Agent required if Assignee is not a Lender or an Affiliate of a Lender.
5	Provided no Default or Event of Default has occurred and is continuing, the consent of the Borrower is required if Assignee is not a Lender or an Affiliate of a Lender.

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EXHIBIT B

COMPLIANCE CERTIFICATE

FOR THE PERIOD FROM        , 200_ TO        , 200_

     This certificate dated as of                      , ___is prepared pursuant to the Third Amended and Restated Credit Agreement dated as of January 21, 2005 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”) among Brigham Oil & Gas, L.P., a Delaware limited partnership (“Borrower”), Brigham Exploration Company, a Delaware corporation, Brigham, Inc., a Nevada corporation, the lenders party thereto (the “Lenders”), and Société Générale, as administrative agent for such Lenders (in such capacity, the “Administrative Agent”). Unless otherwise defined in this certificate, capitalized terms that are defined in the Credit Agreement shall have the meanings assigned to them by the Credit Agreement.

     Brigham Exploration hereby certifies (a) that no Default or Event of Default has occurred or is continuing, (b) that all of the representations and warranties made by each of the Credit Parties in the Credit Agreement and the other Loan Documents are true and correct in all material respects as if made on this date (unless such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date), and (c) that as of the date hereof, the following amounts and calculations are true and correct:

1.	Section 6.18   Current Ratio.
		(a)	consolidated current assets of
			Brigham Exploration and its
			consolidated Subsidiaries
			(including the Unused
			Commitment Amount as
			of the date of calculation)	$
		(b)	consolidated current liabilities of
			Brigham Exploration and its
			consolidated Subsidiaries (excluding
			current maturities of long-term debt)	$
	Current Ratio = (a) divided by (b)
	Minimum Current Ratio			1.00 to 1.00
	Compliance			Yes            No
2.	Section 6.19   Interest Coverage Ratio.
		(a)	Consolidated Net Income	$

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	(b)	Interest Expense	$
	(c)	taxes, depreciation, amortization,
		depletion, and other non-cash
		charges	$
	(d)	all non-cash income	$
	(e)	EBITDA = (a) + (b) + (c)- (d)	$
Interest Coverage Ratio = (e) divided by (b)
Minimum Interest Coverage Ratio for each
twelve-month period ending at the end of each
fiscal quarter			3.00 to 1.00
Compliance			Yes            No

     IN WITNESS THEREOF, I have hereto signed my name to this Compliance Certificate as an officer of Brigham Exploration and not in my individual capacity as of                      , ___.

BRIGHAM EXPLORATION COMPANY

By:

Name:

Title:

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EXHIBIT C

NOTICE OF BORROWING

[Date]

Société Générale, as Administrative Agent
560 Lexington Avenue
New York, New York 10022

Attention: ___________________

Ladies and Gentlemen:

The undersigned, Brigham Oil & Gas, L.P., a Delaware limited partnership (“Borrower”), refers to the Third Amended and Restated Credit Agreement dated as of January 21, 2005 (as the same may be amended or modified from time-to-time, the “Credit Agreement,” the defined terms of which are used in this Notice of Borrowing unless otherwise defined in this Notice of Borrowing) among the Borrower, Brigham Exploration Company, a Delaware corporation, Brigham, Inc., a Nevada corporation, the lenders party thereto (the “Lenders”), and Société Générale, as administrative agent (the “Administrative Agent”), and hereby gives you irrevocable notice pursuant to Section 2.03(a) of the Credit Agreement that the undersigned hereby requests a Borrowing, and in connection with that request sets forth below the information relating to such Borrowing (the “Proposed Borrowing”) as required by Section 2.03(a) of the Credit Agreement:

(a)	The Business Day of the Proposed Borrowing is                      , ___.
(b)	The aggregate amount of the Proposed Borrowing is $                      .
(c)	[The Interest Period for each Eurodollar Rate Advance made as part of the Proposed Borrowing is ___ month[s].]

The Borrower hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing:

(i)   the representations and warranties contained in Article IV of the Credit Agreement and each of the other Loan Documents are true and correct in all material respects, on and as of the date of the Proposed Borrowing, before and after giving effect to such Proposed Borrowing and to the application of the proceeds therefrom, as though made on the date of the Proposed Borrowing (unless such representations and warranties are stated to relate to a specific earlier

C-1

date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date);

(ii)	no Default has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds therefrom; and
(iii)	after giving effect to such Proposed Borrowing, no Borrowing Base Deficiency exists.

Very truly yours,
BRIGHAM OIL & GAS, L.P.
By:	Brigham, Inc., its general partner
By:
Name:
Title:

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EXHIBIT D

NOTICE OF CONVERSION OR CONTINUATION

[Date]

Société Générale
560 Lexington Avenue
New York, New York 10022

Attention: _______________________

Ladies and Gentlemen:

The undersigned, Brigham Oil & Gas, L.P., a Delaware limited partnership (the “Borrower”), refers to the Third Amended and Restated Credit Agreement dated as of January 21, 2005 (as the same may be amended, modified, or supplemented from time-to-time, the “Credit Agreement”, the defined terms of which are used in this Notice of Conversion or Continuation unless otherwise defined in this Notice of Conversion or Continuation) by and among the Borrower, Brigham Exploration Company, a Delaware corporation, Brigham, Inc., a Nevada corporation, the lenders party thereto (“Lenders”), and Société Générale, as administrative agent (“Administrative Agent”) for the Lenders, and hereby gives you irrevocable notice pursuant to Section 2.03(b) of the Credit Agreement that the undersigned hereby requests a [Conversion] [Continuation] of outstanding Advances, and in connection with that request sets forth below the information relating to such [Conversion][Continuation] (the “Proposed [Conversion][Continuation]”) as required by Section 2.03(b) of the Credit Agreement:

     (a) The Business Day of the Proposed [Conversion][Continuation] is                      , ___.

     (b) The aggregate amount of the existing Advance to be Converted or Continued is $                      (“Existing Advance”).

     (c) The Proposed [Conversion][Continuation] consists of [a Conversion of the Existing Advance to a [Base Rate Advance] [Eurodollar Rate Advance]] [a Continuation of the Existing Advance as a Eurodollar Rate Advance].

     [(d) The Interest Period for the Proposed [Conversion][Continuation] is ___ month[s].]

The Borrower hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed [Conversion][Continuation]:

D-1

     (i) the representations and warranties contained in Article IV of the Credit Agreement and each of the other Loan Documents are true and correct in all material respects on and as of the requested funding date of this Proposed [Conversion][Continuation], before and after giving effect to such Proposed [Conversion][Continuation] and to the application of the proceeds from such Proposed [Conversion][Continuation], as though made on and as of the date of the Proposed [Conversion][Continuation] (unless such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date);

     (ii) no Default has occurred and is continuing or would result from such Proposed [Conversion][Continuation] or from the application of the proceeds therefrom; and

     (iii) after giving effect to such Proposed [Conversion][Continuation], no Borrowing Base Deficiency exists.

Very truly yours,
BRIGHAM OIL & GAS, L.P.
By:	Brigham, Inc., its general partner
By:
Name:
Title:

D-2

EXHIBIT E

NOTE

$                                                                                 , ___

     For value received, the undersigned BRIGHAM OIL & GAS, L.P., a Delaware limited partnership (“Borrower”), hereby promises to pay to the order of                      (“Payee”) the principal amount of                       No/100 Dollars ($                      ) or, if less, the aggregate outstanding principal amount of the Advances (as defined in the Credit Agreement referred to below) made by the Payee to the Borrower, together with interest on the unpaid principal amount of the Advances from the date of such Advances until such principal amount is paid in full, at such interest rates, and at such times, as are specified in the Credit Agreement. The Borrower may make prepayments on this Note in accordance with the terms of the Credit Agreement (as defined below).

     This Note is one of the Notes referred to in, and is entitled to the benefits of, and is subject to the terms of, the Third Amended and Restated Credit Agreement dated as of January 21, 2005, (as the same may be amended or modified from time to time, the “Credit Agreement”), among the Borrower, Brigham Exploration Company, a Delaware corporation, Brigham, Inc., a Nevada corporation, the lenders party thereto (the “Lenders”), and Société Générale, as administrative agent (the “Administrative Agent”) for the Lenders. Capitalized terms used in this Note that are defined in the Credit Agreement and not otherwise defined in this Note have the meanings assigned to such terms in the Credit Agreement. The Credit Agreement, among other things, (a) provides for the making of the Advances by the Payee to the Borrower in an aggregate amount not to exceed at any time outstanding the Dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such Advance being evidenced by this Note, and (b) contains provisions for acceleration of the maturity of this Note upon the happening of certain events stated in the Credit Agreement and for prepayments of principal prior to the maturity of this Note upon the terms and conditions specified in the Credit Agreement.

     Both principal and interest are payable in lawful money of the United States of America to the Administrative Agent at 560 Lexington Avenue, New York, New York 10022 or such other location or address specified by the Administrative Agent to the Borrower in same day funds. The Payee shall record payments of principal made under this Note, but no failure of the Payee to make such recordings shall affect the Borrower’s repayment obligations under this Note.

     This Note is secured by the Security Instruments and guaranteed pursuant to Article VIII of the Credit Agreement.

     Except as specifically provided in the Credit Agreement, the Borrower hereby waives presentment, demand, protest, notice of intent to accelerate, notice of acceleration,

E-1

and any other notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder of this Note shall operate as a waiver of such rights.

     THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

     THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

BRIGHAM OIL & GAS, L.P.
By:	Brigham, Inc., its general partner
By:
Name:
Title:

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EXHIBIT F

NOTICE OF CONFIDENTIALITY RIGHTS—IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

FIRST AMENDMENT TO AMENDED AND RESTATED MORTGAGE,
DEED OF TRUST, ASSIGNMENT OF PRODUCTION, SECURITY
AGREEMENT, FIXTURE FILING, AND FINANCING STATEMENT

FROM

BRIGHAM OIL & GAS, L.P.
a Delaware limited partnership,
as grantor and mortgagor,

TO

GRAEME BULLEN,
as successor Trustee

FOR THE BENEFIT OF

SOCIÉTÉ GÉNÉRALE,
as Administrative Agent,
as beneficiary,

AND TO

SOCIÉTÉ GÉNÉRALE,
as Administrative Agent,
as Mortgagee

THIS INSTRUMENT COVERS THE INTEREST OF MORTGAGOR IN MINERALS OR THE LIKE (INCLUDING OIL AND GAS) BEFORE EXTRACTION AND THE SECURITY INTEREST CREATED BY THIS INSTRUMENT ATTACHES TO SUCH MINERALS AS EXTRACTED AND TO ACCOUNTS RESULTING FROM THE SALE THEREOF AT THE WELLHEAD. THIS INSTRUMENT COVERS MORTGAGOR’S INTEREST IN FIXTURES. THIS AMENDMENT IS A FINANCING STATEMENT, AMONG OTHER THINGS, AND AS SUCH, THIS INSTRUMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS.

Prepared by and after recording return to:
Bracewell & Patterson, L.L.P.
? Garrett B. Spear-Smith
711 Louisiana Street, Suite 2900
Houston, Texas 77002

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FIRST AMENDMENT TO AMENDED AND RESTATED MORTGAGE,
DEED OF TRUST, ASSIGNMENT OF PRODUCTION, SECURITY
AGREEMENT, FIXTURE FILING, AND FINANCING STATEMENT

     THIS FIRST AMENDMENT TO AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT, FIXTURE FILING, AND FINANCING STATEMENT (this “Amendment”) dated effective as of January 21, 2005 (the “Effective Date”) is executed by BRIGHAM OIL & GAS, L.P., a Delaware limited partnership, whose address for notice is 6300 Bridge Point Parkway, Building 2, Suite 500, Austin, Texas 78730, as grantor and mortgagor (“Mortgagor”) to GRAEME BULLEN, whose address for notice is 1221 Avenue of the Americas, New York, New York 10020, as successor Trustee (“Trustee”), and to and for the benefit of SOCIÉTÉ GÉNÉRALE, whose address for notice is 1221 Avenue of the Americas , New York, New York 10020, as Administrative Agent (with any successor administrative agents, “Administrative Agent”), and mortgagee (“Mortgagee”).

RECITALS:

     A. In connection with and in order to secure the obligations of Mortgagor under that certain Second Amended and Restated Credit Agreement dated March 21, 2003 among Mortgagor, Administrative Agent (as Lead Arranger, Administrative Agent, and Issuing Lender), The Royal Bank of Scotland plc (as Co-Arranger and Documentation Agent), Bank of America, N.A. (as Syndication Agent), and certain other lenders party thereto (the “Second Amended and Restated Credit Agreement”), Mortgagor, as grantor and mortgagor, executed and delivered that certain Amended and Restated Mortgage, Deed of Trust, Assignment of Production, Security Agreement, Fixture Filing, and Financing Statement dated as of March 21, 2003 to CARY HUGHES, as trustee, and to and for the benefit of Administrative Agent and Mortgagee (the “Amended and Restated Mortgage”), which instrument was amended and supplemented by that certain First Supplement to Amended and Restated Mortgage, Deed of Trust, Assignment of Production, Security Agreement, Fixture Filing, and Financing Statement (the “First Supplement”) executed and delivered by Mortgagor to Trustee and to and for the benefit of Administrative Agent (collectively, the Amended and Restated Mortgage and the First Supplement are referred to herein as the “Original Mortgage”) . The Original Mortgage has been filed of record and recorded as set forth in Schedule 1 attached hereto and made a part hereof. The Original Mortgage encumbers the Mortgaged Property more particularly described therein.

     B. Mortgagor, Administrative Agent (as Lead Arranger, Administrative Agent and Issuing Lender), The Royal Bank of Scotland plc (as Co-Arranger and Documentation Agent), Bank of America, N.A. (as Syndication Agent), and certain other lenders party thereto from time to time are parties to that certain Third Amended and Restated Credit Agreement dated effective as of January 21, 2005, and all supplements thereto and amendments or modifications thereof, and all agreements, given in substitution therefore or in restatement, renewal or extension thereof, in whole or in part (the “Third Amended and Restated Credit Agreement”) which amends and restates the Second Amended and Restated Credit Agreement; the Third Amended and Restated Credit Agreement constitutes for all purposes an amendment and restatement of the Second Amended and Restated Credit Agreement and not a new or substitute agreement. Administrative Agent and the other lenders party to the Third Amended and Restated Credit

F-2

Agreement from time to time may be referred to periodically herein as, individually, a “Lender” and, collectively, as the “Lenders.”

     C. Pursuant to the Third Amended and Restated Credit Agreement, Mortgagor has agreed to enter into this Amendment. In addition, the execution and delivery of this Amendment by Mortgagor to Trustee and to Mortgagee is a condition to the Lenders’ obligations under the Third Amended and Restated Credit Agreement.

     D. Capitalized terms not defined in this Amendment have the meanings assigned to such terms in the Original Mortgage.

     NOW, THEREFORE, in consideration of the foregoing, in order to comply with the terms, provisions, and conditions of the Third Amended and Restated Credit Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Mortgagor, Trustee, and Mortgagee hereby agree as follows:

     Section 1. Amendments to Original Mortgage. The Original Mortgage is hereby amended as follows:

     (a) As applicable and where appropriate, all references in the Original Mortgage to the Second Amended and Restated Credit Agreement (other than in the Recitals thereto) are hereby deleted and replaced with references to the Third Amended and Restated Credit Agreement. The term “Third Amended and Restated Credit Agreement” has the meaning set forth in Recital B to this Amendment and is hereby incorporated into the Original Mortgage.

     (b) Section 1.02 of the Original Mortgage is hereby deleted in its entirety and replaced with the following:

“Section 1.02 Grant of Security Interest. To further secure the Indebtedness (as hereinafter defined in Section 1.03), Mortgagor hereby grants to Mortgagee for the benefit of the Administrative Agent and the Lenders, subject to the reservations and restrictions set forth herein below, a security interest in and to the Mortgaged Property (whether now or hereafter acquired by operation of law or otherwise) consisting of: accounts, contract rights, instruments, documents, chattel paper, equipment, general intangibles (subject in the case of geological and geophysical data (including without limitation raw data and interpretations) contract rights and general intangibles to any existing restrictions on disclosure and/or transfer), insurance contracts, insurance proceeds, inventory, Hydrocarbons, fixtures and any and all other personal property of any kind or character defined in and subject to the provisions of the Uniform Commercial Code presently in effect in the Choice of Law State (as hereinafter defined) (“Applicable UCC”), including the proceeds and products from any and all of such personal property, whether such proceeds or products are goods, money, documents, instruments, chattel paper, securities, accounts, general

F-3

intangibles, fixtures, real or immovable property, personal or movable property, or other assets. In addition to all other rights and remedies afforded to Mortgagee pursuant to this Mortgage, upon the happening of any Event of Default, Mortgagee is and shall be entitled to all of the rights, powers and remedies afforded a secured party by the Applicable UCC with reference to the personal property and fixtures in which Mortgagee has been granted a security interest herein, or Trustee or Mortgagee may proceed as to both the real and personal property covered hereby in accordance with the rights and remedies granted under this Mortgage in respect of the real property covered hereby. Such rights, powers and remedies shall be cumulative and in addition to those granted to Trustee or Mortgagee under any other provision of this Mortgage or under any other Security Instrument. It is Mortgagor’s intention that the security interest granted pursuant to this Mortgage encumber Mortgagor’s interest in As-Extracted Collateral (as hereinafter defined). For purposes of this Mortgage, the term “As-Extracted Collateral” shall have the meaning ascribed to such term in the Applicable UCC. For purposes of this paragraph, “Choice of Law State” means the State of Texas, except to the extent that the laws of any other jurisdiction mandatorily govern the perfection of, or the manner of procedure for enforcement of the security interest created by this Mortgage.”

     (c) Section 1.03(b) of the Original Mortgage is hereby deleted in its entirety and replaced with the following:

“Full payment and performance of all promissory notes, letters of credit, or other evidences of indebtedness issued from time to time pursuant to the Third Amended and Restated Credit Agreement, including, without limitation, those certain promissory notes having a maturity date of the earlier of (i) March 21, 2009 and (ii) 60 days prior to the Subordinated Debt Maturity Date (if any Subordinated Debt remains outstanding on such date).”

     (d) The following language is hereby added to Section 3.01 of the Original Mortgage as the last sentence of such Section 3.01:

“With respect to any portion of the Mortgaged Property which constitutes fixtures or other property governed by the Applicable UCC, no effective financing statement or other instrument similar in effect covering all or any part of such portion of the Mortgaged Property is, or will be on file in any recording office, except such as may be filed in connection with this Mortgage or in connection with other Permitted Liens or for which satisfactory releases have been received by Mortgagee.”

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     (e) The following language is hereby added to Section 3.04 of the Original Mortgage as the last sentence of such Section 3.04:

“With respect to any portion of the Mortgaged Property which constitutes fixtures or other property governed by the Applicable UCC, no consent, order, authorization, or approval or other action by, and no notice to or filing with, any Governmental Authority (other than the filing of financing statements) or any other Person is required for (i) the due execution, delivery and performance by Mortgagor of this Mortgage, (ii) the grant by Mortgagor of the security interest in such portion of the Mortgaged Property, (iii) the perfection of such security interest or (iv) the exercise by Mortgagee or any Lender of its rights and remedies under this Mortgage with respect to such portion of the Mortgaged Property (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally).”

     (f) The following language is hereby added to Section 3.02 of the Original Mortgage as the last two sentences of such Section 3.02:

“With respect to any portion of the Mortgaged Property which constitutes fixtures or other property governed by the Applicable UCC, on the Closing Date this Mortgage will create valid and continuing security interests in each such portion of the Mortgaged Property, securing the payment of the Indebtedness. Upon the filing of financing statements with the secretary of state of the jurisdiction of formation of the Mortgagor and upon the filing of this Mortgage in the real property records of each county in which any such portion of the Mortgaged Property is located, the security interests granted to Mortgagee hereunder will constitute valid first-priority perfected security interests in each such portion of the Mortgaged Property with respect to which a security interest can be perfected by the filing of a financing statement, subject only to Permitted Liens.”

     (g) The following paragraph is hereby added to the Original Mortgage as a new section, Section 3.14:

“Section 3.14. Legal Name; Address; Location of Records. The name of Mortgagor set forth in the signature block of this Mortgage applicable to Mortgagor is the exact legal name of Mortgagor. The legal address of Mortgagor and the address of Mortgagor’s principal place of business and chief executive office is 6300 Bridge Point Parkway, Building 2, Suite 500, Austin, Texas 78730. Mortgagor keeps all records and documents relating to those portions of the Mortgaged Property which constitute

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fixtures or other property governed by the Applicable UCC at such address.”

     (h) The following paragraph and sub-paragraphs are hereby added to the Original Mortgage as a new section, Section 3.15 (and applicable sub-sections):

“Section 3.15. Liability Under Contracts and Accounts. Notwithstanding anything in this Mortgage to the contrary:

     (a) the execution of this Mortgage shall not release Mortgagor from its obligations and duties under the contracts and agreements and accounts;

     (b) the exercise by Mortgagee of any of its rights hereunder shall not release Mortgagor from any of its duties or obligations under the contracts and agreements and the accounts with respect to which Mortgagor has granted a security interest to Mortgagee pursuant to this Mortgage; and

     (c) Mortgagee shall not have any obligation or liability under the contracts and agreements and the accounts with respect to which Mortgagor has granted a security interest to Mortgagee pursuant to this Mortgage by reason of the execution and delivery of this Mortgage, nor shall Mortgagee be obligated to perform any of the obligations or duties of Mortgagor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.”

     (i) The following paragraph and sub-paragraphs are hereby added to the Original Mortgage as a new section, Section 3.16 (and applicable sub-sections):

“Section 3.16. Accounts. Mortgagor agrees that it will use commercially reasonable efforts to ensure that each account:

     (a) is and will be, in all material respects, the genuine, legal, valid, and binding obligations of the account debtor in respect thereof, representing an unsatisfied obligation of such account debtor (except to the extent compromised or settled in the ordinary course of business);

     (b) is and will be, in all material respects, enforceable in accordance with its terms, is not and will not be subject to any setoffs, defenses, taxes, counterclaims, except in the ordinary course of business;

     (c) is and will be, in all material respects, in compliance with all applicable Legal Requirements, whether federal, state, local or foreign; and

     (d) that if evidenced by chattel paper, will not require the consent of the account debtor in respect thereof in connection with its assignment hereunder.

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     (j) The following paragraph and sub-paragraphs are hereby added to the Original Mortgage as a new section, Section 4.02(c) (and applicable sub-sections):

“Section 4.02(c). UCC Remedies. In addition to the other rights and remedies granted to Mortgagee hereunder, if an Event of Default shall occur and be continuing:

     (i) Upon written notice to Mortgagor, all payments received by Mortgagor under or in connection with or in respect of any portion of the Mortgaged Property that constitutes property governed by the Applicable UCC shall be deposited with Mortgagee.

     (ii) With respect to any portion of the Mortgaged Property that constitutes property governed by the Applicable UCC, Mortgagee may, in its reasonable discretion, require Mortgagor to, at Mortgagor’s expense, promptly assemble all or part of such portion of the Mortgaged Property in such locations as Mortgagor and Mortgagee may agree at such time and that is reasonably convenient to both parties, and make it available to Mortgagee at such locations. Mortgagee may occupy, for a reasonable period, any premises owned or leased by Mortgagor where any such portion of the Mortgaged Property is assembled in order to effectuate its rights and remedies hereunder or under law, without obligation to Mortgagor in respect of such occupation.

     (iii) Mortgagee may sell all or part of the Mortgaged Property that constitutes property governed by the Applicable UCC at a public or private sale, at any of Mortgagee’s offices or elsewhere, for cash, on credit, or for future delivery, and upon such other terms as Mortgagee may deem commercially reasonable. Mortgagee shall give Mortgagor 10 days advance notice of the time and place of any public sale or the time after which any private sale is to be made, recognizing that if any such portion of the Mortgaged Property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market shorter notice may be reasonable. Mortgagor acknowledges and agrees that such 10 days advance notice (or such shorter notice as may be reasonable in the event any such portion of the Mortgaged Property is perishable or threatens to decline speedily in value) constitutes reasonable notice. Mortgagee shall not be obligated to make any sale of any such portion of the Mortgaged Property regardless of notice of sale having been given. Mortgagee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

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     (iv) Mortgagee may exercise any rights and remedies of Mortgagor under or in connection with the instruments, documents, chattel paper, or contracts which represent accounts or the general intangibles, in each case that relate to any portion of the Mortgaged Property that constitutes fixtures or other property governed by the Applicable UCC, including, without limitation, any rights of Mortgagor to demand or otherwise require payment of any amount under, or performance of any provisions of such instruments, documents, chattel paper, or contracts which represent accounts or the general intangibles.

     (v) With respect to accounts:

     (A) Mortgagee may, or, upon notice to Mortgagor, may direct Mortgagor to, take any action Mortgagee deems necessary or advisable to enforce collection of the accounts including, without limitation, notifying the account debtors or obligors under any accounts of the assignment of such accounts to Mortgagee and directing such account debtors or obligors to make payment of all amounts due or to become due directly to Mortgagee. Upon such notification and direction, and at the expense of Mortgagor, Mortgagee may enforce collection of any such accounts, and adjust, settle, or compromise the amount or payment thereof in the same manner and to the same extent as Mortgagor might have done.

     (B) After receipt by Mortgagor of the notice referred to in subparagraph (A) above, all amounts and Proceeds (including instruments) received by Mortgagor in respect of the accounts shall be received in trust for the benefit of Mortgagee hereunder, shall be segregated from other funds of Mortgagor, and shall promptly be paid over to Mortgagee in the same form as so received (with any necessary indorsement) to be held as collateral. Mortgagor shall not adjust, settle, or compromise the amount or payment of any account, or release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon other than in the ordinary course of business and consistent with past practices.

This Mortgage shall not be construed to authorize Mortgagee to take any action prohibited by the Applicable UCC or to constitute a waiver by Mortgagor of any right that the Applicable UCC does not permit Mortgagor to waive.”

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     (k) The following paragraph and sub-paragraphs are hereby added to the Original Mortgage as a new section, Section 4.16 (and applicable sub-sections):

“Section 4.16. Mortgagee as Attorney-in-Fact for Mortgagor.

     (a) Attorney-In-Fact. Mortgagor hereby irrevocably appoints Mortgagee as Mortgagor’s attorney-in-fact, with full authority after the occurrence and during the continuance of an Event of Default to act for Mortgagor and in the name of Mortgagor to, in Mortgagee’s discretion:

     (i) file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Mortgaged Property that constitutes fixtures or other property governed by the Applicable UCC;

     (ii) to obtain and adjust insurance as required pursuant to Section 5.02 of the Third Amended and Restated Credit Agreement to the extent Mortgagor has failed to provide such insurance;

     (iii) to receive, indorse, and collect any drafts or other instruments, documents, and chattel paper which are part of the Mortgaged Property;

     (iv) to take or cause to be taken, all actions necessary to perform or comply or cause performance or compliance with the terms of this Mortgage, including, without limitation, actions to pay or discharge taxes and Liens levied or placed on or threatened against any part of the Mortgaged Property that constitutes fixtures or other property governed by the Applicable UCC;

     (v) to ask, demand, collect, sue for, recover, compromise, receive, and give acquittance and receipts for moneys due and to become due under or in respect of any part of the Mortgaged Property that constitutes fixtures or other property governed by the Applicable UCC and to file any claims or take any action or institute any proceedings which Mortgagee may deem necessary or desirable for the collection of any of such collateral or otherwise to enforce the rights of Mortgagee with respect to any of such collateral.

The power of attorney granted hereby is coupled with an interest and is irrevocable.

     (b) Mortgagee May Perform. Mortgagee may from time-to-time, at its option and expense, perform any act which Mortgagor agrees hereunder to perform and which Mortgagor shall fail to perform after being requested in writing so to perform (it

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being understood that no such request need be given after the occurrence and during the continuance of any Event of Default) and Mortgagee may from time-to-time take any other action which Mortgagee reasonably deems necessary for the maintenance, preservation or protection of any part of the Mortgaged Property that constitutes fixtures or other property governed by the Applicable UCC or of its security interest therein.

     (c) Mortgagee Has No Duty. The powers conferred on Mortgagee hereunder are solely to protect its interest in any part of the Mortgaged Property that constitutes fixtures or other property governed by the Applicable UCC and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any such part of the Mortgaged Property in its possession and the accounting for moneys actually received by it hereunder, Mortgagee shall have no duty as to any such collateral or responsibility for taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any such collateral.

     (d) Reasonable Care. Mortgagee shall be deemed to have exercised reasonable care in the custody and preservation of any part of the Mortgaged Property that constitutes fixtures or other property governed by the Applicable UCC in its possession if such collateral is accorded treatment substantially equal to that which Mortgagee accords its own Property, it being understood that Mortgagee shall have no responsibility for taking any necessary steps to preserve rights against any parties with respect to any such collateral.”

     (l) The following paragraph and sub-paragraphs are hereby added to Section 6.11 of the Original Mortgage as additional provisions:

“With respect to any portion of the Mortgaged Property that constitutes fixtures or other property governed by the Applicable UCC, this Mortgage shall create a continuing security interest in such portion of the Mortgaged Property and, unless expressly released by Mortgagee, shall:

     (a) remain in full force and effect until payment in full and termination of the Indebtedness,

     (b) be binding upon Mortgagor, Mortgagee, the Lenders and their successors, and assigns, and

     (c) inure, together with the rights and remedies of Mortgagee, hereunder, to the benefit of Mortgagee, the Lenders and their respective successors, transferees, and assigns.

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Upon the payment in full and termination of the Indebtedness, the security interest granted hereby shall terminate and all rights to any portion of the Mortgaged Property constituting fixtures or other property governed by the Applicable UCC shall revert to Mortgagor to the extent such collateral shall not have been sold or otherwise applied pursuant to the terms hereof. Without limiting the generality of the foregoing clause, when any Lender assigns or otherwise transfers any interest held by it under the Third Amended and Restated Credit Agreement or other Loan Document to any other Person pursuant to the terms of the Third Amended and Restated Credit Agreement or other Loan Document, that other Person shall thereupon become vested with all the benefits held by such Lender under this Mortgage. Upon any such termination, Mortgagee will, at Mortgagor’s expense, execute and deliver to Mortgagor such documents as Mortgagor shall reasonably request and take any other actions reasonably requested to evidence or effect such termination. Any terms used in this Mortgage that are defined in Article 9 of the Applicable UCC shall have the meanings assigned to those terms by the Applicable UCC as of the date of this Mortgage, whether specified elsewhere in this Mortgage or not.”

     (m) Supplements to Original Mortgage. The Original Mortgage is hereby supplemented as follows:

     (1) Granting Clause. In order to secure the payment of the Indebtedness and in order to secure the performance of the covenants, obligations, agreements, warranties, and undertakings herein contained, with respect to the Supplemental Mortgaged Property that is located in or is subject to the laws of the State of Texas or any other state pursuant to the law of which a deed of trust is a lawful security instrument, Mortgagor does hereby GRANT, BARGAIN, SELL, ASSIGN, PLEDGE, GIVE, MORTGAGE, WARRANT, SET OVER, TRANSFER, HYPOTHECATE, and CONVEY unto Trustee and Trustee’s successors and substitutes in trust hereunder IN TRUST WITH POWER OF SALE, for the use and benefit of Administrative Agent and the Lenders, all of Mortgagor’s right, title, and interest, whether now owned or hereafter acquired, in the real and personal property, rights, titles, interests and estates described in subsections (A) through (I) of this Section 1(m) of this Amendment (the “Supplemental Mortgaged Property”).

     (A) All oil and gas and/or oil, gas and mineral leases and leasehold interests, fee mineral interests, term mineral interests, subleases, farmouts, royalties, overriding royalties, net profits interests, production payments and similar interests or estates described on Exhibit A attached hereto or constituting interests in the lands described on Exhibit A attached hereto, including, without limitation, any reversionary or carried interests relating to any of the foregoing, together with any instrument executed in amendment, correction, modification, confirmation, renewal or extension of the same (collectively, the “Supplemental Hydrocarbon Property”), and including specifically, but without limitation, the

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undivided interests of Mortgagor which are represented, warranted, and more particularly described on Exhibit A hereto;

     (B) All rights, titles, interests, estates, tenements, hereditaments, and appurtenances now owned or existing or hereafter acquired by Mortgagor in and to: (A) all production units and drilling and spacing units (and the property covered thereby) which may affect all or any portion of the Supplemental Hydrocarbon Property including those units now or hereafter pooled or unitized with the Supplemental Hydrocarbon Property; (B) all presently existing or future unitization, communitization, pooling agreements and declarations of pooled units and the units created thereby, (together with all other units created under orders, regulations, rules or other official acts of any Governmental Authority having jurisdiction over any of the Supplemental Mortgaged Property and any units created solely among working interest owners pursuant to operating agreements or otherwise) which may affect all or any portion of the Supplemental Hydrocarbon Property including, without limitation, those units, if any, which may be described or referred to on attached Exhibit A; (C) all operating agreements, production sales or other contracts, farmout agreements, farm-in agreements, area of mutual interest agreements, joint development agreements, joint exploration agreements, equipment leases and other agreements described or referred to in this Mortgage or which cover, affect or relate to any of the Supplemental Hydrocarbon Property or interests in the Supplemental Hydrocarbon Property described or referred to herein or on Exhibit A or to the production, sale, purchase, exchange, processing, handling, storage, transporting or marketing of the Hydrocarbons (hereinafter defined) from or attributable to such Supplemental Hydrocarbon Property or interests; and (D) subject to applicable restrictions on disclosure and/or transfer, all geological, geophysical, engineering, accounting, title, legal, and other technical or business data concerning the Supplemental Mortgaged Property, the Hydrocarbons in which Mortgagor can otherwise grant a security interest, and all books, files, records, magnetic media, computer records, and other forms of recording or obtaining access to such data;

     (C) All rights, titles, interests and estates now owned or hereafter acquired by Mortgagor in and to the Hydrocarbons in and under and which may be produced and saved from or attributable to the Supplemental Hydrocarbon Property, the lands pooled or unitized therewith and Mortgagor’s interests therein, including all oil in tanks, gas in storage, and all rents, issues, profits, proceeds, products, revenues and other income from or attributable to the Supplemental Hydrocarbon Property, the lands pooled or unitized therewith and Mortgagor’s interests therein which are subjected to the liens and security interests of the Original Mortgage, as supplemented by this Amendment;

     (D) All tenements, hereditaments, appurtenances and properties in anywise appertaining, belonging, affixed or incidental to the Supplemental Hydrocarbon Property or the rights, titles, interests and estates described or referred to in paragraphs (1) and (2) above, which are now owned or which may

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hereafter be acquired by Mortgagor, including, without limitation, any and all property, real or personal, now owned or hereafter acquired and situated upon, used, held for use, or useful in connection with the operating, working or development of any of such Supplemental Hydrocarbon Property or the lands pooled or unitized therewith (excluding drilling rigs, trucks, automotive equipment or other personal property which may be taken to the premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, field separators, liquid extraction plants, plant compressors, pumps, pumping units, pipelines, sales and flow lines, gathering systems, field gathering systems, salt water disposal facilities, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements, servitudes, licenses and other surface and subsurface rights together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing properties;

     (E) Any property that may from time to time hereafter, by delivery or by writing of any kind, be subjected to the lien and security interest hereof by Mortgagor or by anyone on Mortgagor’s behalf;

     (F) All of the rights, titles, interests and estates of every nature whatsoever now owned or hereafter acquired by Mortgagor in and to the Supplemental Hydrocarbon Property, including, without limitation, all such rights, titles, interests, and estates as the same may be enlarged by the discharge of any payments out of production or by the removal of any charges or Permitted Encumbrances to which any of such rights, titles, interests or estates are subject, or otherwise; all rights of Mortgagor to liens and security interests securing payment of proceeds from the sale of production from the Supplemental Mortgaged Property including, but not limited to, those liens and security interests provided for in Section 9.343 of the Texas Business and Commerce Code, as amended from time to time; together with any and all renewals and extensions of any of such liens and security interests; all contracts and agreements supplemental to or amendatory of or in substitution for the contracts and agreements described or mentioned above, including, without limitation, any such contracts and agreements comprising or giving rise to any portion of the Supplemental Hydrocarbon Property; and any and all additional interests of any kind hereafter acquired by Mortgagor in and to such rights, titles, interests or estates;

     (G) All accounts, contract rights, inventory, general intangibles, insurance contracts and insurance proceeds constituting a part of, relating to or arising out of those portions of the Supplemental Mortgaged Property which are described in paragraphs (A) through (F) above and all proceeds and products of all such portions of the Supplemental Mortgaged Property and payments in lieu of production (such as “take or pay” payments), whether such proceeds or payments are goods, money, documents, instruments, chattel paper, securities, accounts, general intangibles, fixtures, real property, or other assets;

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     (H) All payments received in lieu of production from the Supplemental Mortgaged Property (regardless of whether such payments accrued, and/or the events which gave rise to such payments occurred, on, before, or after the Effective Date), including, without limitation, “take or pay” payments and similar payments, payments received in settlement of or pursuant to a judgment rendered with respect to take or pay or similar obligations or other obligations under a production sales contract, payments received in buyout or buydown or other settlement of a production sales contract, and payments received under a gas balancing or similar agreement as a result of (or received otherwise in settlement of or pursuant to a judgment rendered with respect to) rights held by Mortgagor as a result of Mortgagor (and/or its predecessors in title) taking or having taken less Hydrocarbons from lands covered by the Supplemental Mortgaged Property (or lands pooled or unitized therewith) than their ownership of the Supplemental Mortgaged Property would entitle Mortgagor to receive; and

     (I) Any rights or interests of Mortgagor under any present or future hedge or swap agreements, cap, floor, collar, exchange, forward or other hedge or protection agreements or transactions relating to Hydrocarbons, or any option with respect to such agreement or transaction now existing or hereafter entered into by or on behalf of Mortgagor.

TO HAVE AND TO HOLD the Supplemental Mortgaged Property unto Trustee for the benefit of the Administrative Agent and the Lenders, and Trustee’s successors in trust and assigns forever, in each case upon the terms, provisions, and conditions set forth herein. Mortgagor does hereby bind itself, and its successors and permitted assigns, to warrant and forever defend all and singular the Supplemental Mortgaged Property unto Trustee against every Person whomsoever lawfully claiming or to claim the same, or any part thereof.

     (2) Grant of Security Interest. To further secure the Indebtedness, Mortgagor hereby grants to Mortgagee for the benefit of the Administrative Agent and the Lenders, subject to the reservations and restrictions set forth herein below, a security interest in and to the Supplemental Mortgaged Property (whether now or hereafter acquired by operation of law or otherwise) consisting of: accounts, contract rights, instruments, documents, chattel paper, equipment, general intangibles (subject in the case of geological and geophysical data (including without limitation raw data and interpretations) contract rights and general intangibles to any existing restrictions on disclosure and/or transfer), insurance contracts, insurance proceeds, inventory, Hydrocarbons, fixtures and any and all other personal property of any kind or character defined in and subject to the provisions of the Applicable UCC, including the proceeds and products from any and all of such personal property, whether such proceed or products are goods, money, documents, instruments, chattel paper, securities, accounts, general intangibles, fixtures, real or immovable property, personal or movable property, or other assets. In addition to all other rights and remedies afforded to Mortgagee pursuant to this Mortgage, upon the happening of any Event of Default, Mortgagee is and shall be entitled to all of the rights, powers and remedies afforded a secured party by the Applicable UCC with reference to the personal property and fixtures in which Mortgagee

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has been granted a security interest herein Such rights, powers and remedies shall be cumulative and in addition to those granted to Trustee or Mortgagee under any other provision of this Mortgage or under any other Security Instrument. It is Mortgagor’s intention that the security interest granted pursuant to this Mortgage encumber Mortgagor’s interest in As-Extracted Collateral (as hereinafter defined). For purposes of this Mortgage, the term “As-Extracted Collateral” shall have the meaning ascribed to such term in the Applicable UCC.

     (3) Fixture Filing, etc. Without in any manner limiting the generality of any of the other provisions of this Amendment or of the Original Mortgage: (1) some portions of the Supplemental Mortgaged Property constitutes goods which are or are to become fixtures on the land described or to which reference is made herein or on attached Exhibit A; (2) the security interests created hereby under applicable provisions of the Applicable UCC will attach to Hydrocarbons (minerals including oil and gas) or the accounts resulting from the sale thereof at the wellhead or minehead located on the land described or to which reference is made herein; and (c) this Amendment is to be filed of record in the real estate records as a fixture filing with respect to all fixtures comprising any part of the Supplemental Mortgaged Property and as a financing statement pursuant to the Applicable UCC with respect to any As-Extracted Collateral and any other personal property comprising any part of the Supplemental Mortgaged Property. Mortgagor is the record owner of the real estate or interests in the real estate comprised of the Supplemental Mortgaged Property.

     (4) Assignment of Production.

     (A) Assignment. Mortgagor has hereby absolutely and unconditionally assigned, transferred, set over, and conveyed, and does hereby absolutely and unconditionally assign, transfer, set over, and convey unto Mortgagee, its successors and assigns, all of the Hydrocarbons and all products obtained or processed therefrom, and the revenues and proceeds now and hereafter attributable to the Hydrocarbons and said products and all payments in lieu of the Hydrocarbons such as “take or pay” payments or settlements, together with the immediate and continuing right to collect and receive all of the foregoing (the “Production Proceeds”). The Hydrocarbons and products are to be delivered into pipelines connected with the Supplemental Mortgaged Property, or to the purchaser thereof, to the credit of Mortgagee, free and clear of all taxes, charges, costs, and expenses; and all such revenues and proceeds shall be paid directly to Mortgagee, at its banking quarters in New York, New York with no duty or obligation of any party paying the same to inquire into the rights of Mortgagee to receive the same, what application is made thereof, or as to any other matter. Mortgagor agrees to perform all such acts, and to execute all such further assignments, transfers and division orders, and other instruments as may be required or desired by Mortgagee or any party in order to have said proceeds and revenues so paid to Mortgagee. Mortgagee is fully authorized to receive and receipt for said revenues and proceeds; to endorse and cash any and all checks and drafts payable to the order of Mortgagor or Mortgagee for the account of Mortgagor received from or in connection with said revenues or proceeds and to

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hold the proceeds thereof in a bank account as additional collateral securing the Indebtedness; and to execute transfer and division orders in the name of Mortgagor, or otherwise, with warranties binding Mortgagor. All proceeds received by Mortgagee pursuant to this assignment shall be applied as provided in the other Loan Documents. Mortgagee shall not be liable for any delay, neglect, or failure to effect collection of any proceeds or to take any other action in connection therewith or hereunder; but Mortgagee shall have the right, at its election, in the name of Mortgagor or otherwise, to prosecute and defend any and all actions or legal proceedings deemed advisable by Mortgagee in order to collect such funds and to protect the interests of Mortgagee, and/or Mortgagor, with all costs, expenses and attorneys’ fees incurred in connection therewith being paid by Mortgagor. Mortgagor hereby appoints Mortgagee as its attorney in fact to pursue any and all rights of Mortgagor to liens on and security interests in the Hydrocarbons securing payment of proceeds of runs attributable to the Hydrocarbons. In addition to the rights granted to Trustee and/or Mortgagee in this Mortgage, Mortgagor hereby further transfers and assigns to Mortgagee any and all such liens, security interests, financing statements or similar interests of Mortgagor attributable to its interest in the Hydrocarbons and proceeds of runs therefrom arising under or created by said statutory provision, judicial decision or otherwise. The power of attorney granted to Mortgagee in this sub-section, being coupled with an interest, shall be irrevocable so long as the Indebtedness or any part thereof remains unpaid.

     (B) No Modification of Payment Obligations. Nothing herein contained shall modify or otherwise alter the obligation of Mortgagor to make prompt payment of all principal and interest owing on the Indebtedness when and as the same become due regardless of whether the proceeds of the Hydrocarbons are sufficient to pay the same and the rights provided in accordance with the foregoing assignment provision shall be cumulative of all other security of any and every character now or hereafter existing to secure payment of the Indebtedness.

     (C) Release from Liability; Indemnification. Administrative Agent and its successors and assigns are hereby absolutely absolved from all liability for failure to enforce collection of the proceeds from runs attributable to the Hydrocarbons and from all other responsibility in connection therewith, except the responsibility to account to Mortgagor for funds actually received by Administrative Agent. Mortgagor agrees to indemnify and hold harmless Administrative Agent, including, for purposes of this paragraph, Administrative Agent’s directors, officers, partners, employees, and agents and any persons owned or controlled by any affiliate of Administrative Agent, from and against all claims, demands, liabilities, losses, damages (including, without limitation, consequential, punitive, and special damages), causes of action, judgments, penalties, costs and reasonable out-of-pocket expenses (including, without limitation, reasonable attorneys’ fees and expenses) imposed upon, asserted against, or incurred or paid by Administrative Agent by reason of the assertion that Administrative Agent has received, either before or after payment in full of

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the Indebtedness, funds from the production of Hydrocarbons. The foregoing indemnities shall not terminate upon the expiration, termination, or cancellation of the Third Amended and Restated Credit Agreement or this Mortgage, but shall survive such expiration, termination, or cancellation, as well as any foreclosure of this Mortgage or any conveyance in lieu of foreclosure, and the repayment of the Indebtedness and the discharge and release of this Mortgage and any other documents evidencing and/or securing the Indebtedness. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS THE INTENTION OF MORTGAGOR AND MORTGAGOR HEREBY AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES (INCLUDING, WITHOUT LIMITATION, CONSEQUENTIAL, PUNITIVE, AND SPECIAL DAMAGES), CAUSES OF ACTION, JUDGMENTS, PENALTIES, COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES AND EXPENSES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF ANY INDEMNIFIED PARTY. Notwithstanding the foregoing, however, the indemnities set forth in this sub-section shall not apply to any particular indemnified party (but shall apply to the other indemnified parties) to the extent the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of such particular indemnified party.

     (D) Absolute Obligation of Credit Parties. Nothing herein contained shall detract from or limit the obligations of any Mortgagor or any other Credit Party to make payment as required pursuant to the terms of the Loan Documents, regardless of whether the assignment of production described in this subsection (4) of this Section 1(m) of this Amendment is sufficient to pay same, and the rights under this subsection (4) of this Section 1(m) shall be cumulative of all other rights of Administrative Agent and any other Lender under the Loan Documents.

     (5) Indebtedness Secured. This Amendment is executed and delivered by Mortgagor to secure and enforce the Indebtedness (as that term is defined in the Original Mortgage).

     (A) Supplement to Definitions in Original Mortgage. It is Mortgagor’s express intention that, (1) insofar as all of the Supplemental Hydrocarbon Property and the Supplemental Mortgaged Property is located in the state of Texas, the Supplemental Hydrocarbon Property and the Supplemental Mortgaged Property be incorporated into and become part of the defined terms “Hydrocarbon Property” and “Trust Estate Property”, respectively, as such terms are used in the Original Mortgage, and, to the extent applicable under the Original Mortgage, and (2) the Supplemental Mortgaged Property be incorporated, together with all of the Trust Estate Property described in the Original Mortgage, into and become part of the defined term “Mortgaged Property” (as that term is used in the Original Mortgage).

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     (B) Supplement to Original Mortgage Exhibits. Exhibit A to the Original Mortgage is hereby supplemented and amended by adding thereto Exhibit A to this Amendment. All references in the Original Mortgage to “Exhibit A” (including, without limitation, references to Exhibit A used in the definition of the terms “Trust Estate Property”, “Non-Trust Estate Property”, and “Mortgaged Property” set forth in the Original Mortgage) shall refer collectively to Exhibit A to the Original Mortgage as supplemented and amended by adding thereto Exhibit A to this Amendment.

     Section 2. Appointment of Successor Trustee. Pursuant to and in accordance with Mortgagee’s rights and powers granted under Section 5.02 of the Original Mortgage, Mortgagee hereby removes the present Trustee under the Original Mortgage and appoints GRAEME BULLEN, whose address for purposes of this appointment and this Amendment is 1221 Avenue of the Americas, New York, New York 10020, as successor trustee under the Original Mortgage (as amended by this Amendment). As further provided in Section 5.02 of the Original Mortgage, the appointment of such successor trustee does hereby vest in such successor trustee all the estate and title in and to all of the Mortgaged Property, and hereby, the successor trustee succeeds to all of the rights, powers, privileges, immunities, and duties hereby conferred upon “Trustee” named in the Original Mortgage.

     Section 3. Effect of Amendment. Except as expressly amended and supplemented hereby, the Original Mortgage shall remain in full force and effect. Nothing in this Amendment releases any right, claim, lien, security interest or entitlement of the Administrative Agent or the Lenders created by or contained in the Original Mortgage or releases the Mortgagor from any covenant, warranty or obligation created by or contained in the Original Mortgage.

     Section 4. Counterparts. As noted in Section 6.09 of the Original Mortgage, the instrument was executed in several counterparts, all of which are identical, except that to facilitate recordation, where the Mortgaged Property was situated in more than one county, descriptions of only those portions of the Mortgaged Property located in the county in which a particular counterpart was recorded were attached as Exhibit A thereto. A complete Exhibit A for the Amended and Restated Mortgage was attached to the counterpart filed in Brooks County, Texas as County Clerk’s File Number 077753, in Volume 232, at Page 1. A complete Exhibit A for the First Supplement was attached to the counterpart filed in Brooks County, Texas as County Clerk’s File Number 079344, in Volume 241, at Page 307. This Amendment is also being executed in several counterparts, all of which are identical, except that to facilitate recordation, where additional property is being added to the Mortgaged Property by the supplementing paragraphs of this Amendment and such property is situated in more than one county, descriptions of only those portions of the Mortgaged Property located in the county in which a particular counterpart is recorded are attached as Exhibit A hereto. A complete listing of all of the Mortgaged Property can be obtained by reference to the Exhibit A attached to the counterpart to the Amended and Restated Mortgage filed in the real property records of Brooks County, Texas, the Exhibit A attached to the counterpart to the First Supplement filed in the real property records of Brooks County, Texas, and the Exhibit A attached to the counterpart to this Amendment filed in the real property records of Brooks County, Texas.

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     Section 5. Ratification of Original Mortgage. The Amended and Restated Mortgage and the First Supplement are hereby ratified, adopted, confirmed and renewed, except with respect to properties, rights and interests previously released in writing by the Administrative Agent. All representations, warranties and covenants of the Mortgagor in the Amended and Restated Mortgage and the First Supplement are hereby repeated, remade and incorporated herein by reference on and as of the date hereof, except to the extent changed by the transactions contemplated by this Amendment, the Original Mortgage, or previously released in writing by the Administrative Agent and except to the extent that such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date.

     Section 6. Successors and Assigns. The terms, provisions, covenants and conditions hereof shall be binding upon the Mortgagor, and the successors and assigns of the Mortgagor, and shall inure to the benefit of Administrative Agent and its successors and assigns. All references in this Amendment to Mortgagor, Administrative Agent or Lenders shall be deemed to include such successors or assigns.

     Section 7. Miscellaneous. This Amendment shall be considered a “Security Instrument” as such term is defined in the Original Mortgage.

     Section 8. CHOICE OF LAW. THIS AMENDMENT SHALL, WITHOUT REGARD TO CONFLICTS OF LAW, BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A PORTION OF THE PROPERTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE PROPERTY) NECESSARILY GOVERNS WITH RESPECT TO PROCEDURAL AND SUBSTANTIVE MATTERS RELATING TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER RIGHTS AND REMEDIES OF THE TRUSTEE OR ADMINISTRATIVE AGENT GRANTED HEREIN, THE LAW OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF THE PROPERTY LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.

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NOTICE TO MORTGAGOR:

A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. WITH RESPECT TO PORTIONS OF THE MORTGAGED PROPERTY LOCATED IN THE STATE OF OKLAHOMA, SUCH POWER OF SALE IS GRANTED PURSUANT TO THE OKLAHOMA MORTGAGE FORECLOSURE ACT (AS DEFINED IN SECTION 1.01 OF THIS MORTGAGE). THIS POWER OF SALE MAY ALLOW TRUSTEE OR MORTGAGEE, AS APPLICABLE, TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON THE OCCURRENCE OF AN EVENT OF DEFAULT BY MORTGAGOR UNDER THIS INSTRUMENT. THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF FUTURE ADVANCES, AND COVERS ALL PRODUCTS AND PROCEEDS OF MORTGAGED PROPERTY.

[SIGNATURE PAGES FOLLOW]

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[SIGNATURE PAGE TO FIRST MORTGAGE AMENDMENT — PAGE 1 OF 2]

     IN WITNESS HEREOF, Mortgagor has executed and delivered this Amendment effective as of the day and year first above written.

MORTGAGOR:
BRIGHAM OIL & GAS, L.P., a Delaware
limited partnership
By:	Brigham, Inc., a Nevada corporation,
	its General Partner
	By:	/s/ Eugene B. Shepherd, Jr.
		Eugene B. Shepherd, Jr.
		Executive Vice President and
		Chief Financial Officer

[SIGNATURE PAGE TO FIRST MORTGAGE AMENDMENT — PAGE 2 OF 2]

     IN WITNESS HEREOF, Mortgagee has executed and delivered this Amendment effective as of the day and year first above written.

MORTGAGEE:
SOCIÉTÉ GÉNÉRALE
By:	/s/ Graeme Bullen
	Graeme Bullen
	Vice President

[ACKNOWLEDGEMENTS PAGE TO FIRST AMENDMENT — PAGE 1 OF 1]

STATE OF TEXAS	§
	§
COUNTY OF HARRIS	§

     Before me, a Notary Public in and for said county and state, on this                     , 2005, personally appeared EUGENE B. SHEPHERD, JR., to me known to be the identical person who subscribed the name of the maker thereof to the foregoing instrument as Executive Vice President and Chief Financial Officer of BRIGHAM, INC., a Nevada corporation, as general partner of BRIGHAM OIL & GAS, L.P., a Delaware limited partnership, and acknowledged to me that such person executed the same as such person’s free and voluntary act and deed, and as the free and voluntary act and deed of such corporation for the uses and purposes therein set forth.

                                                            
Notary Public in and for the
State of Texas

Notarial Seal:

STATE OF TEXAS	§
	§
COUNTY OF HARRIS	§

     Before me, a Notary Public in and for said county and state, on this                     , 2005, personally appeared GRAEME BULLEN, to me known to be the identical person who subscribed the name of the maker thereof to the foregoing instrument as Vice President of Société Générale, and acknowledged to me that such person executed the same as such person’s free and voluntary act and deed, and as the free and voluntary act and deed of such entity for the uses and purposes therein set forth.

                                                            
Notary Public in and for the
State of Texas

Notarial Seal:

EXHIBIT G

FORM OF SECOND AMENDED AND RESTATED PLEDGE AGREEMENT

     This Second Amended and Restated Pledge Agreement dated as of January 21, 2005 (“Pledge Agreement”) is between [Brigham Exploration Company, a Delaware corporation][Brigham, Inc., a Nevada corporation][Brigham Oil & Gas, L.P., a Delaware limited partnership] (“Pledgor”), and Société Générale, as administrative agent for the lenders party to the Credit Agreement described below (“Secured Party”).

INTRODUCTION

     A. [Brigham Oil & Gas, L.P., a Delaware limited partnership (“Borrower”)][Pledgor], [Brigham Exploration Company, a Delaware corporation], [Brigham, Inc., a Nevada corporation], the lenders party thereto and Secured Party, as administrative agent for such lenders, were parties to that certain Second Amended and Restated Credit Agreement dated as of March 21, 2003, as amended (the “Existing Credit Agreement”).

     B. In order to secure the full and punctual payment and performance of the obligations under the Existing Credit Agreement and the other loan documents contemplated thereby, the Pledgor executed and delivered the security instruments described on Schedule I attached hereto (the “Existing Security Documents”) in favor of the Secured Party and has granted a continuing security interest in and to the Pledged Collateral (as hereafter defined).

     C. [The Borrower][Pledgor], [Brigham Exploration Company, a Delaware corporation], [Brigham, Inc., a Nevada corporation], the lenders named therein (the “Lenders”) and Secured Party, as administrative agent for the Lenders, have entered into the Third Amended and Restated Credit Agreement dated as of January 21, 2005 (as amended, restated or otherwise modified from time-to-time, the “Credit Agreement”), which, among other things, amends and restates the Existing Credit Agreement in its entirety.

     [D. Pledgor has guaranteed the Obligations of Borrower under the Credit Agreement pursuant to Article VIII thereof (the “Guaranty”).]

     E. Under the Credit Agreement, it is a condition to the making of Advances by the Lenders that [Pledgor][Borrower] shall amend and restate the Existing Security Documents to secure its [obligations under the Guaranty][Obligations under the Credit Agreement] by entering into this Pledge Agreement.

     Therefore, Pledgor hereby agrees with Secured Party for its benefit and the ratable benefit of the Lenders as follows:

     Section 1. Definitions. All capitalized terms not otherwise defined in this Pledge Agreement that are defined in the Credit Agreement shall have the meaning assigned to such terms by the Credit Agreement. Any capitalized terms used in this Pledge Agreement that are defined in Articles 8 or 9 of the Uniform Commercial Code as adopted in the State of New York (“UCC”) shall have the meanings assigned to those terms by the UCC as of the date of this Pledge Agreement, whether specified elsewhere in this Pledge Agreement or not. All other rules

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of interpretation set forth in Section 1.05 of the Credit Agreement shall apply to this Pledge Agreement and are hereby incorporated herein by reference.

     Section 2. Pledge.

     (a) Grant of Pledge. Pledgor hereby pledges to Secured Party, and grants to Secured Party, for its benefit and the ratable benefit of the Lenders, a continuing lien on and security interest in the Pledged Collateral, as defined in Section 2(b) below. This Pledge Agreement shall secure all Obligations of Pledgor now or hereafter existing under the Guaranty and the other Loan Documents to which it is a party, including any extensions, modifications, substitutions, amendments, and renewals thereof, whether for principal, interest, fees, expenses, indemnifications or otherwise, in each case including the payment of amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. §§ 101 et seq., as amended. All such obligations shall be referred to in this Pledge Agreement as the “Secured Obligations”.

     (b) Pledged Collateral. “Pledged Collateral” shall mean all of Pledgor’s right, title, and interest in the following, whether now owned or hereafter acquired:

     (i) all of the membership interests listed in the attached Schedule II issued to Pledgor (the “Membership Interests”), all such additional membership interests of any issuer of such interests hereafter acquired by Pledgor, the certificates representing the Membership Interests, if any, and all such additional membership interests, all of Pledgor’s rights, privileges, authority, and powers as a member of the issuer of such Membership Interests under the applicable [Limited Liability Company Operating Agreement][Limited Liability Company Regulations] of such issuer and all rights to money or Property which Pledgor now has or hereafter acquires in respect of the Membership Interests, including, without limitation, (A) any Proceeds from a sale by or on behalf of Pledgor of any of the Membership Interests, and (B) any distributions, dividends, cash, instruments and other Property from time-to-time received or otherwise distributed in respect of the Membership Interests, whether regular, special or made in connection with the partial or total liquidation of the issuer and whether attributable to profits, the return of any contribution or investment or otherwise attributable to the Membership Interests or the ownership thereof other than distributions received by Pledgor in compliance with the Loan Documents (collectively, the “Membership Interests distributions”);

     (ii) all of the general and limited partnership interests listed in the attached Schedule II issued to Pledgor (the “Partnership Interests”), all such additional limited or general partnership interests of any issuer of such Partnership Interests hereafter acquired by Pledgor, all of Pledgor’s rights, privileges, authority, and powers as a limited or general partner of the issuer of such Partnership Interests under the applicable [Limited Partnership Agreement][Partnership Agreement] of such issuer, and all rights to money or Property which Pledgor now has or hereafter acquires in respect of the Partnership

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Interests, including, without limitation, (A) any Proceeds from a sale by or on behalf of Pledgor of any of the Partnership Interests, and (B) any distributions, dividends, cash, instruments and other Property from time-to-time received or otherwise distributed in respect of the Partnership Interests, whether regular, special or made in connection with the partial or total liquidation of the issuer and whether attributable to profits, the return of any contribution or investment or otherwise attributable to the Partnership Interests or the ownership thereof other than distributions received by Pledgor in compliance with the Loan Documents (collectively, the “Partnership Interest distributions”); and

     (iii) all of the shares of stock listed in the attached Schedule II issued to Pledgor (the “Pledged Shares”), all such additional shares of stock of any issuer of such Pledged Shares hereafter issued to Pledgor, the certificates representing the Pledged Shares and all such additional shares, all of Pledgor’s rights, privileges, authority, and powers as a shareholder of the issuer of such Pledged Shares under the applicable [Articles][Certificate] of Incorporation and Bylaws of such issuer and all rights to money or Property which Pledgor now has or hereafter acquires in respect of the Pledged Shares, including, without limitation, (A) any Proceeds from a sale by or on behalf of Pledgor of any of the Pledged Shares, and (B) any distributions, dividends, cash, instruments and other Property from time-to-time received or otherwise distributed in respect of the Pledged Shares, whether regular, special or made in connection with the partial or total liquidation of the issuer and whether attributable to profits, the return of any contribution or investment or otherwise attributable to the Pledged Shares or the ownership thereof other than distributions received by Pledgor in compliance with the Loan Documents (collectively, the “Pledged Shares distributions”; together with the Membership Interest distributions and the Partnership Interest distributions, the “distributions”); and

     (iv) all additions and accessions to, substitutions and replacements of, and all products and proceeds from the Pledged Collateral described in paragraphs (i), (ii) and (iii) of this Section 2(b).

     (c) Delivery of Pledged Collateral. All certificates or instruments, if any, representing the Pledged Collateral shall be delivered to Secured Party and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Secured Party. After the occurrence and during the continuance of an Event of Default, Secured Party shall have the right, upon prior written notice to Pledgor, to transfer to or to register in the name of Secured Party or any of its nominees any of the Pledged Collateral, subject to the rights specified in Section 2(d). In addition, after the occurrence and during the continuance of an Event of Default, Secured Party shall have the right at any time to exchange the certificates or instruments representing the Pledged Collateral for certificates or instruments of smaller or larger denominations.

     (d) Rights Retained by Pledgor. Notwithstanding the pledge in Section 2(a):

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     (i) until such time as voting and other consensual rights have been terminated pursuant to Section 5 hereof, Pledgor shall be entitled to exercise any voting and other consensual rights pertaining to the Pledged Collateral for any purpose not inconsistent with the terms of this Pledge Agreement or the Credit Agreement; provided, however, that Pledgor shall not exercise or shall refrain from exercising any such right if such action would have a materially adverse effect on the value of the Pledged Collateral;

     (ii) except as otherwise provided in the Credit Agreement and so long as no Event of Default shall have occurred and remain uncured, Pledgor shall be entitled to receive and retain any dividends and other distributions paid on or in respect of the Pledged Collateral and the Proceeds of any sale of the Pledged Collateral and all payments of principal and interest on loans and advances made by Pledgor to the issuer of the Pledged Collateral; and

     (iii) at and after such time as voting and other consensual rights have been terminated pursuant to Section 5 hereof, Pledgor shall execute and deliver (or cause to be executed and delivered) to Secured Party all proxies and other instruments as Secured Party may reasonably request to (A) enable Secured Party to exercise the voting and other rights which Pledgor is entitled to exercise pursuant to subsection (i) of this Section 2(d), and (B) to receive the dividends or other distributions and Proceeds of sale of the Pledged Collateral and payments of principal and interest which Pledgor is authorized to receive and retain pursuant to paragraph (ii) of this Section 2(d).

     Section 3. Pledgor’s Representations and Warranties. Pledgor represents and warrants to Secured Party and the Lenders as follows:

     (a) The Pledged Collateral listed on the attached Schedule II has been duly authorized and validly issued and is fully paid and nonassessable.

     (b) Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any Lien or option, except for (i) the security interest created by this Pledge Agreement and (ii) other Permitted Liens.

     (c) No authorization, authentication, approval, or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required either (i) for the pledge by Pledgor of the Pledged Collateral pursuant to this Pledge Agreement or for the execution, delivery, or performance of this Pledge Agreement by Pledgor (except to the extent that financing statements are required under the UCC to be filed in order to maintain a perfected security interest) or (ii) for the exercise by Secured Party or any Lender of the voting or other rights provided for in this Pledge Agreement or the remedies in respect of the Pledged Collateral pursuant to this Pledge Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally).

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     (d) Pledgor has the full right, power and authority to deliver, pledge, assign and transfer the Pledged Collateral to Secured Party.

     (e) [The [Membership Interests][Partnership Interests] listed on the attached Schedule II constitute [100][1]% of the issued and outstanding [membership][general partnership] interests of the respective issuer thereof and all [Membership Interests][Partnership Interests] in which Pledgor has any ownership interest.][The Pledged Shares listed on the attached Schedule II constitute 100% of the issued and outstanding shares of capital stock of the respective issuer thereof and of the Pledged Shares in which Pledgor has any ownership interests.]

     (f) The name of Pledgor set forth in the first paragraph of this Pledge Agreement is the exact legal name of Pledgor. The legal address of Pledgor and the address of its principal place of business and chief executive office is 6300 Bridge Point Parkway, Building 2, Suite 500, Austin, Texas 78730. Pledgor keeps all records and documents relating to the Pledged Collateral at such address or with Nevada Corporate Management, Inc., 3773 Howard Hughes Parkway, Suite 300, North Las Vegas, Nevada 89109.

     Section 4. Pledgor’s Covenants. During the term of this Pledge Agreement and until all of the Secured Obligations have been fully and finally paid and discharged in full, Pledgor covenants and agrees with Secured Party that:

     (a) Protect Collateral; Further Assurances. Pledgor will warrant and defend the rights and title herein granted unto Secured Party in and to the Pledged Collateral (and all right, title, and interest represented by the Pledged Collateral) against the claims and demands of all Persons whomsoever. Pledgor agrees that, at the expense of Pledgor, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be reasonably necessary and that Secured Party or any Lender may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party or any Lender to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral.

     (b) Transfer, Other Liens, and Additional Shares. Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral or (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for (A) the Liens and security interest under this Pledge Agreement and (B) other Permitted Liens. Pledgor agrees that it will (1) cause each issuer of the Pledged Collateral not to issue any other membership interests, partnership interests, capital stock or other securities in addition to or in substitution for the Pledged Collateral issued by such issuer, except to Pledgor and (2) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any additional membership interests, partnership interests, capital stock or other securities of an issuer of the Pledged Collateral. Pledgor shall not approve any amendment or modification of any of the Pledged Collateral unless it shall have given at least ten Business Days’ prior written notice (or such lesser period as may be agreed by Secured Party in writing) to Secured

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Party, and such amendment or modification would not be materially adverse to the interests of the Lenders.

     (c) Jurisdiction of Formation; Name Change. Pledgor shall not (i) amend, supplement, modify or restate its articles or certificate of incorporation, bylaws, limited liability company agreements, or other equivalent organizational documents if such amendment, supplement, modification or restatement would be materially adverse to the interests of the Lenders, or (ii) unless the Pledgor shall have given Secured Party at least ten Business Days’ prior written notice (or such lesser period as may be agreed by Secured Party in writing), amend its name or change its jurisdiction of incorporation, organization or formation. Promptly upon the request of Secured Party, Pledgor shall take all such action as Secured Party shall reasonably request to maintain the security interest of Secured Party in the Pledged Collateral granted hereby at all time fully perfected and in full force and effect.

     Section 5. Remedies upon Default. If any Event of Default shall have occurred and be continuing:

     (a) UCC Remedies. To the extent permitted by law, Secured Party may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for in this Pledge Agreement or otherwise available to it, all the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Pledged Collateral). This Pledge Agreement shall not be construed to authorize the Secured Party to take any action prohibited by the UCC or to constitute a waiver by the Pledgor of any right that the UCC does not permit the Pledgor to waive.

     (b) Dividends and Other Rights.

     (i) All rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 2(d)(i) may be exercised by Secured Party if Secured Party so elects and gives written notice of such election to Pledgor and all rights of Pledgor to receive the dividends and other distributions on or in respect of the Pledged Collateral and the proceeds of sale of the Pledged Collateral which it would otherwise be authorized to receive and retain pursuant to Section 2(d)(ii) shall cease at such time as such written notice is deemed effective pursuant to the provisions of the Credit Agreement related to effectiveness of notices.

     (ii) All dividends and other distributions on or in respect of the Pledged Collateral and the proceeds of sale of the Pledged Collateral that are thereafter received by Pledgor shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Pledgor, and shall be promptly paid over to Secured Party as Pledged Collateral in the same form as so received (with any necessary indorsement).

     (c) Sale of Pledged Collateral. Secured Party may sell all or part of the Pledged Collateral at public or private sale, at any of Secured Party’s offices or

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elsewhere, for cash, on credit, or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable in accordance with applicable laws. Pledgor agrees that to the extent permitted by law such sales may be made without notice. If notice is required by law, Pledgor hereby deems 10 days’ advance notice of the time and place of any public sale or the time after which any private sale is to be made reasonable notification, recognizing that if the Pledged Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market shorter notice may be reasonable. Secured Party shall not be obligated to make any sale of the Pledged Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time-to-time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Pledgor shall cooperate fully with Secured Party in all respects in selling or realizing upon all or any part of the Pledged Collateral. In addition, Pledgor shall fully comply with the applicable securities laws of the United States, the State of [Delaware][Nevada], and other states and take such actions as may be necessary to permit Secured Party to sell or otherwise dispose of any securities representing the Pledged Collateral in compliance with such laws.

     (d) Exempt Sale. If, in the opinion of Secured Party, there is any question that a public or semipublic sale or distribution of any Pledged Collateral will violate any state or federal securities law, Secured Party in its discretion (i) may offer and sell securities privately to purchasers who will agree to take them for investment purposes and not with a view to distribution and who will agree to imposition of restrictive legends on the certificates representing the security, or (ii) may sell such securities in an intrastate offering under Section 3(a)(11) of the Securities Act of 1933, as amended, and no sale so made in good faith by Secured Party shall be deemed to be not “commercially reasonable” solely because so made. Pledgor shall cooperate fully with Secured Party in all reasonable respects in selling or realizing upon all or any part of the Pledged Collateral.

     (e) Application of Collateral. The proceeds of any sale, or other realization upon all or any part of the Collateral pledged by Pledgor shall be applied by Secured Party as set forth in Section 7.06 of the Credit Agreement.

     (f) Cumulative Remedies. Each right, power and remedy herein specifically granted to Secured Party or otherwise available to it shall be cumulative, and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity, or otherwise, and each such right, power and remedy, whether specifically granted herein or otherwise existing, may be exercised at any time and from time-to-time as often and in such order as may be deemed expedient by Secured Party in its sole discretion. No failure on the part of Secured Party to exercise, and no delay in exercising, and no course of dealing with respect to, any such right, power or remedy, shall operate as a waiver thereof, nor shall any single or partial exercise of any such rights, power or remedy preclude any other or further exercise thereof or the exercise of any other right.

     Section 6. Secured Party as Attorney-in-Fact for Pledgor.

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     (a) Secured Party Appointed Attorney-in-Fact. Pledgor hereby irrevocably appoints Secured Party as Pledgor’s attorney-in-fact, with full authority after the occurrence and during the continuance of an Event of Default to act for Pledgor and in the name of Pledgor, and, in Secured Party’s discretion, subject to Pledgor’s revocable rights specified in Section 2(d), to take any action and to execute any instrument which Secured Party may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including, without limitation, to receive, indorse, and collect all instruments made payable to Pledgor representing the proceeds of the sale of the Pledged Collateral, or any distribution in respect of the Pledged Collateral and to give full discharge for the same. Pledgor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest.

     (b) Secured Party May Perform. Secured Party may from time-to-time, at its option and expense, perform any act which Pledgor agrees hereunder to perform and which Pledgor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of any Event of Default and after notice thereof by Secured Party to Pledgor) and Secured Party may from time-to-time take any other action which Secured Party reasonably deems necessary for the maintenance, preservation or protection of any of the Pledged Collateral or of its security interest therein. Secured Party shall be obligated to provide notice to Pledgor of any action taken hereunder by telecopy or by registered mail.

     (c) Secured Party Has No Duty. The powers conferred on Secured Party hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Pledged Collateral or responsibility for taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Pledged Collateral.

     (d) Reasonable Care. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which Secured Party accords its own property, it being understood that Secured Party shall have no responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders, or other matters relative to any Pledged Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral.

     Section 7. Miscellaneous.

     (a) Expenses. Pledgor will upon demand pay to Secured Party for its benefit and the benefit of the Lenders the amount of any reasonable out-of-pocket expenses, including the reasonable fees and disbursements of its counsel and of any experts, which Secured Party and the Lenders may incur in connection with (i) the custody, preservation,

G-8

use, or operation of, or the sale, collection, or other realization of, any of the Pledged Collateral, (ii) the exercise or enforcement of any of the rights of Secured Party or any Lender hereunder, and (iii) the failure by Pledgor to perform or observe any of the provisions hereof.

     (b) Amendments, Etc. No amendment or waiver of any provision of this Pledge Agreement nor consent to any departure by Pledgor herefrom shall be effective unless made in writing and authenticated by Pledgor and Secured Party. In addition, no such amendment or waiver shall be effective unless given or entered into with the necessary approvals of the Lenders as required in the Credit Agreement. Any such waiver or consent, whether by Secured Party or Secured Party and the Lenders shall be effective only in the specific instance and for the specific purpose for which given.

     (c) Addresses for Notices. All notices and other communications provided for hereunder shall be in the manner and to the addresses set forth in the Credit Agreement.

     (d) Continuing Security Interest; Transfer of Interest. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and, unless expressly released by Secured Party, shall (i) remain in full force and effect until payment in full and termination of the Secured Obligations, (ii) be binding upon Pledgor, Secured Party, the Lenders and their successors, and assigns, and (iii) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of and be binding upon, Secured Party, the Lenders and their respective successors, transferees, and assigns. Upon the payment in full and termination of the Secured Obligations, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to Pledgor to the extent such Pledged Collateral shall not have been sold or otherwise applied pursuant to the terms hereof. Without limiting the generality of the foregoing clause, when any Lender assigns or otherwise transfers any interest held by it under the Credit Agreement or other Loan Document to any other Person pursuant to the terms of the Credit Agreement or other Loan Document, that other Person shall thereupon become vested with all the benefits held by such Lender under this Pledge Agreement. Upon any such termination, Secured Party will, at Pledgor’s expense, deliver all Pledged Collateral to Pledgor, execute and deliver to Pledgor such documents as Pledgor shall reasonably request and take any other actions reasonably requested to evidence or effect such termination.

     (e) Waivers. Pledgor hereby waives:

     (i) promptness, diligence, notice of acceptance, and any other notice with respect to any of the Secured Obligations and this Pledge Agreement;

     (ii) any requirement that Secured Party or any Lender protect, secure, perfect, or insure any Lien or any Property subject thereto or exhaust any right or take any action against Pledgor, any other Guarantor, Borrower or any other Person or any collateral; and

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     (iii) any duty on the part of Secured Party to disclose to Pledgor any matter, fact, or thing relating to the business, operation, or condition of Pledgor, any other Guarantor, Borrower and their respective assets now known or hereafter known by such Person.

     (f) Severability. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement.

     (g) Choice of Law. This Pledge Agreement shall be governed by and construed and enforced in accordance with the laws of the state of New York, except to the extent that the validity or perfection of the security interests hereunder, or remedies hereunder, in respect of any particular Pledged Collateral are governed by the laws of a jurisdiction other than the state of New York.

     (h) Counterparts. For the convenience of the parties, this Pledge Agreement may be executed in multiple counterparts, each of which for all purposes shall be deemed to be an original, and all such counterparts shall together constitute but one and the same Pledge Agreement.

     (i) Reinstatement. If, at any time after payment in full by Pledgor of all Secured Obligations and termination of Secured Party’s security interest, any payments on the Secured Obligations previously made by Pledgor or any other person must be disgorged by Secured Party for any reason whatsoever, including, without limitation, the insolvency, bankruptcy or reorganization of Pledgor or such Person, this Pledge Agreement and Secured Party’s security interests herein shall be reinstated as to all disgorged payments as though such payments had not been made, and Pledgor shall sign and deliver to Secured Party all documents, and shall do such other acts and things, as may be necessary to reinstate and perfect Secured Party’s security interest.

     (j) Amendment and Restatement. This Pledge Agreement amends and restates in its entirety the Existing Security Documents, and all of the terms hereof shall supersede the terms and provisions thereof. This Pledge Agreement renews and extends all Liens existing by virtue of the Existing Security Documents, but the terms, provisions and conditions of such Liens shall hereafter be governed in all respects by this Pledge Agreement.

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     Executed as of the date first above written.

BRIGHAM EXPLORATION COMPANY
By:
Name:
Title:
BRIGHAM, INC.
By:
Name:
Title:
BRIGHAM OIL & GAS, L.P.
By:	Brigham, Inc., its General Partner
By:
Name:
Title:
SOCIETE GENERALE, as Administrative Agent
By:
Name:
Title:

G-11

SCHEDULE I

EXISTING SECURITY DOCUMENTS

1. Amended and Restated Pledge Agreement dated as of March 21, 2003 by the Pledgor in favor of the Secured Party, as amended.

G-12

EX-10.45

EXHIBIT 10.45

Execution Copy

SECOND AMENDED AND RESTATED SUBORDINATED CREDIT AGREEMENT

among

BRIGHAM OIL & GAS, L.P.,

as the Borrower,

BRIGHAM EXPLORATION COMPANY,

and

BRIGHAM, INC.,

as Guarantors,

THE LENDERS PARTY HERETO FROM TIME TO TIME

as Lenders,

and

THE ROYAL BANK OF SCOTLAND plc,

as Agent,

January 21, 2005

TABLE OF CONTENTS

	Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS		2
Section 1.01 Certain Defined Terms		2
Section 1.02 Computation of Time Periods		20
Section 1.03 Accounting Terms; Changes in GAAP		20
Section 1.04 Miscellaneous		21
ARTICLE II CREDIT FACILITIES		21
Section 2.01 Advances		21
Section 2.02 Intentionally Omitted		23
Section 2.03 Intentionally Omitted		23
Section 2.04 Reduction of the Commitments		23
Section 2.05 Prepayment of Advances		24
Section 2.06 Repayment of Advances		25
Section 2.07 Intentionally Omitted		25
Section 2.08 Intentionally Omitted		25
Section 2.09 Interest		25
Section 2.10 Payments and Computations		26
Section 2.11 Sharing of Payments, Etc		27
Section 2.12 Breakage Costs		27
Section 2.13 Increased Costs		27
Section 2.14 Taxes		28
ARTICLE III CONDITIONS OF LENDING		30
Section 3.01 Conditions Precedent to Closing Date		30
Section 3.02 Conditions Precedent to All Borrowings		34
ARTICLE IV REPRESENTATIONS AND WARRANTIES		34
Section 4.01 Corporate Existence; Subsidiaries		34
Section 4.02 Corporate Power		34
Section 4.03 Authorization and Approvals		35
Section 4.04 Enforceable Obligations		35
Section 4.05 Financial Statements		35

i

	Page
Section 4.06 True and Complete Disclosure		36
Section 4.07 Litigation		36
Section 4.08 Taxes		36
Section 4.09 Pension Plans		37
Section 4.10 Condition of Property; Casualties		37
Section 4.11 Security Instruments		39
Section 4.12 No Burdensome Restrictions; No Defaults		40
Section 4.13 Environmental Condition		40
Section 4.14 Gas Contracts		41
Section 4.15 Compliance with Laws		41
Section 4.16 Material Agreements		42
Section 4.17 Organizational Documents		42
Section 4.18 Guarantors		42
Section 4.19 Insurance		42
Section 4.20 Use of Proceeds		42
Section 4.21 Investment Company Act		42
Section 4.22 Public Utility Holding Company Act		42
Section 4.23 Transmitting Utility		42
ARTICLE V AFFIRMATIVE COVENANTS		43
Section 5.01 Compliance with Laws, Etc		43
Section 5.02 Maintenance of Insurance		43
Section 5.03 Preservation of Corporate Existence, Etc		44
Section 5.04 Payment of Taxes, Etc		44
Section 5.05 Inspection; Books and Records		44
Section 5.06 Reporting Requirements		44
Section 5.07 Maintenance of Property		47
Section 5.08 Environmental Laws		48
Section 5.09 Payment of Trade Payables		48
Section 5.10 Use of Proceeds		48
Section 5.11 Additional Collateral		48
Section 5.12 New Subsidiaries		49

ii

	Page
Section 5.13 Title		49
Section 5.14 Further Assurances		49
Section 5.15 Delivery of Engineering Reports		50
ARTICLE VI NEGATIVE COVENANTS		51
Section 6.01 Liens, Etc		51
Section 6.02 Debts, Guaranties, and Other Obligations		51
Section 6.03 Agreements Restricting Liens and Distributions		52
Section 6.04 Merger or Consolidation		53
Section 6.05 Sales of Assets		53
Section 6.06 Restricted Payments		54
Section 6.07 Investments and Acquisitions		54
Section 6.08 Affiliate Transactions		54
Section 6.09 Compliance with ERISA		54
Section 6.10 Sales and Leasebacks		55
Section 6.11 Change of Business		56
Section 6.12 Use of Proceeds		56
Section 6.13 Gas Imbalances, Take-or-Pay or Other Prepayments		56
Section 6.14 Additional Subsidiaries		56
Section 6.15 Limitation on Leases		56
Section 6.16 Equity Interests of Partners		56
Section 6.17 Change of Name; Fiscal Year; Accounting Method		57
Section 6.18 Current Ratio		57
Section 6.19 Interest Coverage Ratio		57
Section 6.20 Restrictions on Limited Partners		57
Section 6.21 Advance Payment Contracts		57
Section 6.22 Calculated Total NPV to Total Debt Ratio		57
ARTICLE VII EVENTS OF DEFAULT; REMEDIES		58
Section 7.01 Events of Default		58
Section 7.02 Optional Acceleration of Maturity		60
Section 7.03 Automatic Acceleration of Maturity		61
Section 7.04 Right of Set off		61

iii

	Page
Section 7.05 Non-exclusivity of Remedies		61
Section 7.06 Application of Proceeds		62
ARTICLE VIII THE GUARANTY		62
Section 8.01 Liabilities Guaranteed		62
Section 8.02 Nature of Guaranty		62
Section 8.03 Agent’s Rights		63
Section 8.04 Guarantor’s Waivers		63
Section 8.05 Maturity of Obligations, Payment		64
Section 8.06 Agent’s Expenses		64
Section 8.07 Liability		64
Section 8.08 Events and Circumstances Not Reducing or Discharging any Guarantor’s Obligations		64
Section 8.09 Subordination of All Guarantor Claims		66
Section 8.10 Claims in Bankruptcy		66
Section 8.11 Payments Held in Trust		67
Section 8.12 Liens Subordinate		67
Section 8.13 Guarantor’s Enforcement Rights		67
ARTICLE IX THE AGENT		67
Section 9.01 Authorization and Action		67
Section 9.02 Agent’s Reliance, Etc		68
Section 9.03 The Agent and Its Affiliates		68
Section 9.04 Lender Credit Decision		68
Section 9.05 Indemnification		69
Section 9.06 Successor Agent		69
Section 9.07 Collateral Matters		70
ARTICLE X MISCELLANEOUS		71
Section 10.01 Amendments, Etc		71
Section 10.02 Notices, Etc		72
Section 10.03 No Waiver; Remedies		72
Section 10.04 Costs and Expenses		72
Section 10.05 Binding Effect		72

iv

	Page
Section 10.06 Lender Assignments and Participations		73
Section 10.07 Indemnification		75
Section 10.08 Execution in Counterparts		75
Section 10.09 Survival of Representations, Etc		75
Section 10.10 Severability		75
Section 10.11 Governing Law		76
Section 10.12 Submission To Jurisdiction; Waivers		76
Section 10.13 Waiver of Jury Trial		76
Section 10.14 Oral Agreements		76
Section 10.15 Dissemination of Information		77
Section 10.16 Production Proceeds		77
Section 10.17 Replacement of Lenders		78
Section 10.18 Amendment and Restatement		79
EXHIBITS:
Exhibit A – Form of Assignment and Acceptance		A-1
Exhibit B – Form of Compliance Certificate		B-1
Exhibit C – [Reserved]		C-1
Exhibit D – [Reserved]		D-1
Exhibit E – Form of Subordinated Note		E-1

v

SECOND AMENDED AND RESTATED SUBORDINATED CREDIT AGREEMENT

     THIS SECOND AMENDED AND RESTATED SUBORDINATED CREDIT AGREEMENT dated as of January 21, 2005 is among BRIGHAM OIL & GAS, L.P., a Delaware limited partnership (the “Borrower”), BRIGHAM EXPLORATION COMPANY, a Delaware corporation (“Brigham Exploration”), BRIGHAM, INC., a Nevada corporation (the “General Partner”), the lenders party hereto from time to time (the “Lenders”), and THE ROYAL BANK OF SCOTLAND plc, as agent (in such capacity, the “Agent”).

INTRODUCTION

     A. The Borrower, the Guarantors (as defined below), the lenders party thereto, and The Royal Bank of Scotland plc, as agent, are parties to that certain Amended and Restated Subordinated Credit Agreement dated March 21, 2003, as amended on or before the date hereof (the “Existing Subordinated Credit Agreement”).

     B. The Borrower, the Guarantors, the Lenders and the Agent desire to refinance the indebtedness and obligations arising under the Existing Subordinated Credit Agreement, and the indebtedness and liens arising under the Existing Subordinated Credit Agreement shall be assigned to the Agent and the Lenders pursuant hereto, so that all indebtedness and obligations arising hereunder shall be secured by such liens and security interests as were created pursuant to the Existing Subordinated Credit Agreement and such other liens as provided for herein, and the terms of the Borrower’s financing shall hereafter be amended and restated in its entirety as set forth herein.

     C. Reference is made to that certain Third Amended and Restated Credit Agreement dated as of the date hereof (the “Senior Credit Agreement”) among the Borrower, Brigham Exploration, the General Partner, the lenders party thereto from time to time (the “Senior Lenders”), Société Générale, as lead arranger (the “Lead Arranger”), as administrative agent for the Senior Lenders (the “Senior Agent”) and as issuing lender for the Senior Lenders (the “Issuing Lender”), The Royal Bank of Scotland plc, as co-arranger and as documentation agent (the “Documentation Agent”), and Bank of America, N.A., as co-arranger (in such capacity together with the Royal Bank of Scotland plc in such capacity, the “Co-Arrangers”) and as Syndication Agent (the “Syndication Agent”).

     D. Pursuant to that certain Second Amended and Restated Intercreditor and Subordination Agreement dated as of the date hereof (the “Intercreditor and Subordination Agreement”) among the Senior Agent, the Agent, the Borrower and the Guarantors, the Subordinated Obligations (as hereinafter defined) are expressly subordinated to the Senior Obligations (as hereinafter defined).

     Therefore, the Borrower, the Guarantors, the Lenders and the Agent agree that the Existing Subordinated Credit Agreement is hereby amended and restated in its entirety as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

     Section 1.01 Certain Defined Terms. As used in this Agreement, the terms defined above shall have the meanings set forth therein and the following terms shall have the following meanings (unless otherwise indicated, such meanings to be equally applicable to both the singular and plural forms of the terms defined):

     “Acceptable Security Interest” in any Property means a Lien which (a) exists in favor of the Agent for the benefit of the Agent and the Lenders, (b) is superior to all Liens or rights of any other Person in the Property encumbered thereby, other than Permitted Liens, (c) secures the Subordinated Obligations, and (d) is perfected and enforceable.

     “Advance” means any advance hereunder of monies by a Lender to the Borrower as part of a Borrowing.

     “Advance Payment Contract” means any contract whereby any Person either receives or becomes entitled to receive (either directly or indirectly through a third party for such Person’s account or benefit) any payment (an “Advance Payment”) to be applied toward the payment of the purchase price of Hydrocarbons produced or to be produced from any Properties owned by such Person and which Advance Payment is paid or to be paid more than 90 days in advance of actual delivery of such production to or for the account of the purchaser regardless of such production, and the Advance Payment is, or is to be, applied as payment in full for such production when sold and delivered or is, or is to become applied as payment for a portion only of the purchase price thereof or for a percentage or a share of such production.

     “Affiliate” of any Person shall mean (a) any Person directly or indirectly controlled by, controlling or under common control with such first Person, (b) any director or officer of such first Person or of any Person referred to in clause (a) above and (c) if any Person in clause (a) above is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. For purposes of this definition, any Person which owns directly or indirectly 20% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 20% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to “control” (including, with its correlative meanings, “controlled by” and “under common control with”) such corporation or other Person; provided, however, that “Affiliate” shall not include any Affiliates of the Preferred Shareholders.

     “Affiliated Fund” means with respect to any Preferred Shareholder, any other fund that is managed or advised by the same manager, general partner or investment advisor as such Preferred Shareholder or by an Affiliate of such manager, general partner or investment advisor.

2

     “Agent” means The Royal Bank of Scotland plc, in its capacity as agent pursuant to Article IX, and any successor agent pursuant to Section 9.06.

     “Agreement” means this Second Amended and Restated Subordinated Credit Agreement, as the same may be amended, supplemented, and otherwise modified from time to time.

     “Applicable Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Lending Office” opposite its name on Schedule 1 or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.

     “Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of the attached Exhibit A.

     “Base Rate” means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the higher of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as at the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

     “Base Rate Advance” means an Advance which bears interest based on the Base Rate.

     “Borrower” has the meaning given thereto in the Preamble.

     “Borrowing” means a borrowing of Advances renewed and extended by each Lender pursuant to Section 2.01(a).

     “Borrowing Base” has the meaning assigned to it now and from time to time hereafter in the Senior Credit Agreement.

     “Brigham Exploration” has the meaning given thereto in the Preamble.

     “Business Day” means a day of the year on which banks are not required or authorized to close in New York, New York and, if the applicable Business Day relates to any Eurodollar Rate Advance, a day of the year on which dealings are carried out by banks in the London interbank market.

     “Calculated Total NPV” means at any time the Total NPV then most recently determined as of the date of an Engineering Report, provided that (a) in making any determination of Calculated Total NPV on and after December 31, 2004, any aggregate PDNP NPV and PUD NPV in excess of 53.85% of PDP NPV shall be excluded, so that at least 65% of Calculated Total NPV is comprised of PDP NPV, and (b) whenever, and for so long as, the Borrower fails to timely deliver an Engineering Report as required under Section 5.15, the Calculated Total

3

NPV shall be deemed to be the Agent’s estimate of such amount made pursuant to Section 6.22(d).

     “Capital Leases” means, as applied to any Person, any lease of any Property by such Person as lessee which would, in accordance with GAAP, be required to be classified and accounted for as a capital lease on the balance sheet of such Person.

     “Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.

     “Cash Equivalents” means (a) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case maturing within one year or less from the date of creation thereof, (b) commercial paper maturing within one year from the date of creation thereof rated in the highest grade by Standard and Poor’s Ratings Group (“S&P”) and by Moody’s Investors Service, Inc. (“Moody’s”), (c) deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United States, Canada or England or any other bank or trust company which is organized under the laws of the United States, Canada or England or any state or province thereof, has capital, surplus and undivided profits aggregating at least $100,000,000.00 (as of the date of such Lender’s or bank or trust company’s most recent financial reports) and has a short term deposit rating of not lower than A2 or P2, as such rating is set forth from time to time by S&P or Moody’s, respectively, and (d) deposits in money market funds investing exclusively in investments described in clauses (a) through (c) of this definition.

     “CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, state and local analogs, and all rules and regulations and requirements thereunder in each case as now or hereafter in effect.

     “Change of Control” means any of the following: (a) any acquisition pursuant to which any Person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act) (other than the Preferred Shareholders) has become the direct or indirect beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than 35% of the Voting Stock of Brigham Exploration; (b) any transaction or acquisition pursuant to which any one or more of the Preferred Shareholders has or have become the direct or indirect beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than 47% of the Voting Stock of Brigham Exploration; (c) Brigham Exploration is merged with or into or consolidated with another Person except as otherwise permitted by Section 6.04; (d) Brigham Exploration, either individually or in conjunction with one or more of its Subsidiaries, sells, conveys, transfers or leases, or its Subsidiaries sell, convey, transfer or lease, all or substantially all of the assets of Brigham Exploration and its Subsidiaries, taken as a whole (either in one transaction or a series of related transactions), including Capital Stock of its Subsidiaries, to any Person except as otherwise permitted by Section 6.04; (e) the first day on which a majority of the individuals who constitute

4

the Board of Directors of Brigham Exploration are not Continuing Directors or (f) Brigham Exploration shall cease to own, directly or indirectly, 100% of the Capital Stock of the Borrower.

     “Closing Date” means the date on which the conditions set forth in Section 3.01 are satisfied, which date shall not be later than January 21, 2005.

     “Code” means the Internal Revenue Code of 1986, as amended, and any successor statute.

     “Collateral” means Property of the Credit Parties, now owned or hereafter acquired, that is subject to any Lien in favor of the Agent, or the Lenders, to secure, directly or indirectly, the Subordinated Obligations.

     “Commitment” means, for any Lender, the amount set opposite such Lender’s name on Schedule 1 as its “Commitment”, or if such Lender has entered into any Assignment and Acceptance, as set forth for such Lender as its Commitment in the Register maintained by the Agent pursuant to Section 10.06(c), as such amount may be reduced or terminated pursuant to Section 2.04 or Article VII or otherwise under this Agreement. The original aggregate amount of the Commitments is $20,000,000.

     “Commitment Termination Date” means the earlier of (a) the Maturity Date and (b) the earlier termination in whole of the Commitments pursuant to Section 2.04 or Article VII or otherwise under this Agreement.

     “Compliance Certificate” means a compliance certificate in the form of the attached Exhibit B signed by a Responsible Officer of Brigham Exploration.

     “Consolidated Net Income” means, with respect to Brigham Exploration and its consolidated Subsidiaries, for any period, the aggregate of the net income (or loss) of Brigham Exploration and its consolidated Subsidiaries after allowances for taxes for such period as determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from the calculation of such net income (to the extent otherwise included therein) the following: (a) the net income of any Person in which Brigham Exploration or any consolidated Subsidiary has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of Brigham Exploration and its consolidated Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in such period by such other Person to Brigham Exploration or to a consolidated Subsidiary, as the case may be; (b) the net income (but not loss) of any consolidated Subsidiary to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by that consolidated Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument or Legal Requirement applicable to such consolidated Subsidiary, or is otherwise restricted or prohibited in each case determined in accordance with GAAP; (c) the net income (or loss) of any Person acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; (d) any extraordinary gains or losses, including gains or losses attributable to Property sales not in the ordinary course of business; and (e) the cumulative effect

5

of a change in accounting principles and any gains or losses attributable to writeups or writedowns of assets.

     “Continuing Director” means an individual who (a) is a member of the full Board of Directors of Brigham Exploration and (b) either (i) was a member of the Board of Directors of Brigham Exploration on the Closing Date or (ii) whose nomination for election or election to the Board of Directors of Brigham Exploration was approved by vote of at least two-thirds of the directors then still in office who were either directors on the Closing Date or whose election or nomination for election was previously so approved.

     “Controlled Group” means all members of a controlled group of corporations and all businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code.

     “Credit Parties” means the Borrower and the Guarantors.

     “Debt” means, for any Person, without duplication:

     (a) indebtedness of such Person for borrowed money;

     (b) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

     (c) obligations of such Person (whether contingent or otherwise) in respect to letters of credit, bankers’ acceptances, surety or other bonds and similar instruments, and agreements relating to the issuance of letters of credit or acceptance financing;

     (d) obligations of such Person to pay the deferred purchase price of Property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices and accrued current liabilities incurred in the ordinary course of business);

     (e) all obligations of such Person under Capital Leases;

     (f) all indebtedness created or arising under any conditional-sale or other title-retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property);

     (g) net obligations of such Person under any Interest Hedge Agreement or Hydrocarbon Hedge Agreement;

     (h) obligations of such Person under any Advance Payment Contract;

     (i) obligations of such Person owing in respect of redeemable preferred stock of such Person;

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     (j) any obligations in connection with any volumetric or production payments;

     (k) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) of such Person to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (j) above; and

     (l) indebtedness or obligations of others of the kinds referred to in clauses (a) through (k) above secured by any Lien on or in respect of any Property of such Person; provided, that if such Person has not assumed or otherwise become liable in respect of such Debt, the amount of Debt of such Person shall be limited to the lesser of (a) the fair market value of the Property serving such indebtedness or obligations and (b) the outstanding amount of such indebtedness or obligations.

     “Default” means (a) an Event of Default or (b) any event or condition which with notice or lapse of time or both would become an Event of Default.

     “Dollars” and “$” means lawful money of the United States of America.

     “Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” opposite its name on Schedule 1 or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.

     “EBITDA” means, without duplication, for Brigham Exploration and its consolidated Subsidiaries for any period, (a) Consolidated Net Income for such period, plus (b) to the extent deducted in determining Consolidated Net Income for such period, Interest Expense, taxes, depreciation, depletion, amortization and other non-cash charges for such period, minus (c) to the extent added in determining Consolidated Net Income for such period, all non-cash income during such period, in each case determined in accordance with GAAP and without duplication of amounts.

     “Eligible Assignee” means (a) any Lender or any Affiliate of any Lender and (b) any commercial bank or other financial institution approved by (i) the Agent in its reasonable discretion and (ii) provided that no Default or Event of Default has occurred and is continuing, the Borrower (which consent shall not be unreasonably withheld or delayed).

     “Engineering Reports” means either an Independent Engineering Report or an Internal Engineering Report delivered by the Borrower pursuant to Section 5.15(a) or Section 5.15(b) as applicable, provided that each such report hereafter delivered must (a) separately report on Proved Developed Producing Reserves, Proved Developed Nonproducing Reserves and Proved Undeveloped Reserves and separately calculate the NPV of each such category of Proved Reserves for the Borrower’s interest, (b) use a 9% discount rate and a price deck for each calendar year as described below in the definition of “NPV”, (c) take into account the Borrower’s actual experiences with leasehold operating expenses and other costs in determining projected leasehold operating expenses and other costs, (d) identify and take into account any “over-

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produced” or “under-produced” status under gas balancing arrangements, (e) contain information and analysis comparable in scope to that contained in the initial Engineering Report, and (f) otherwise be in form and substance reasonably satisfactory to the Agent.

     “Environment” or “Environmental” shall have the meanings set forth in 43 U.S.C. 9601(8) (1988).

     “Environmental Claim” means any third party (including governmental agencies and employees) action, lawsuit, claim, demand, regulatory action or proceeding, order, decree, consent agreement or notice of potential or actual responsibility or violation (including claims or proceedings under the Occupational Safety and Health Acts or similar laws or requirements relating to health or safety of employees) which seeks to impose liability under any Environmental Law.

     “Environmental Law” means, as to any Credit Party, all Legal Requirements or common law theories applicable to any Credit Party arising from, relating to, or in connection with the Environment, including without limitation CERCLA, relating to (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or restoration of the air, surface water, groundwater, land surface or subsurface strata, or other natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling, reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants, contaminants, hazardous, medical infections, or toxic substances, materials or wastes; or (d) the manufacture, processing, handling, transportation, distribution in commerce, use, storage or disposal of hazardous or toxic substances, materials or wastes.

     “Environmental Permit” means any permit, license, order, approval, registration or other authorization under Environmental Law.

     “Equity Interest” means with respect to any Person, any shares, interests, participation, or other equivalents (however designated) of corporate stock, membership interests or partnership interests (or any other ownership interests) of such Person.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

     “Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Federal Reserve Board (or any successor), as in effect from time to time.

     “Eurodollar Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Eurodollar Lending Office” opposite its name on Schedule 1 (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.

     “Eurodollar Rate” means, for each Interest Period, the interest rate per annum (rounded upward to the nearest whole multiple of 1/100 of 1% per annum) set forth on Telerate Page 3750

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(or any replacement page) as the London Interbank Offered Rate, for deposits in Dollars at 11:00 a.m. (London, England time) two Business Days before the first day of the applicable Interest Period and for a period equal to such Interest Period; provided that, if no such quotation appears on Telerate Page 3750 (or any replacement page), the Eurodollar Rate shall be an interest rate per annum equal to the rate per annum at which deposits in Dollars are offered by the principal office of The Royal Bank of Scotland plc in London, England to prime banks in the London interbank market at 11:00 a.m. (London, England time) two Business Days before the first day of such Interest Period in an amount substantially equal to the Eurodollar Rate Advance to be maintained by the Lender that is the Agent in respect of such Borrowing and for a period equal to such Interest Period.

     “Eurodollar Rate Advance” means an Advance which bears interest as provided in Section 2.09(a).

     “Eurodollar Rate Reserve Percentage” of any Lender for the Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental, or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.

     “Event of Default” has the meaning specified in Section 7.01.

     “Excepted Liens” means (a) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (b) Liens in connection with workmen’s compensation, unemployment insurance or other social security, old age pension or public liability obligations not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (c) operators’, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, workmen’s, materialmen’s, construction or other like Liens arising in the ordinary course of business or incident to the exploration, development, operation and maintenance of Properties or customary landlord’s liens, each of which is in respect of obligations that have not been outstanding more than 90 days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been maintained in accordance with GAAP; (d) any Liens reserved in leases, farmout agreements, exploration agreements, operating agreements or participation agreements for rent, or royalties or other production proceeds and for compliance with the terms of such agreements or leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held or materially impair the value of such Property subject thereto; (e) encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Property or services), easements, restrictions, servitudes,

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permits, conditions, covenants, exceptions or reservations in any rights of way or other Property for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in the title of any rights of way or other Property which in the aggregate do not materially impair the use of such rights of way or other Property for the purposes of which such rights of way and other Property are held or materially impair the value of such Property subject thereto; (f) deposits of cash or securities to secure the performance of bids, trade contracts, leases, statutory obligations and other obligations of a like nature incurred in the ordinary course of business; and (g) minor defects in the chain of title to the Properties that are customarily accepted in the oil and gas industry; provided that none of such defects interfere with the ordinary conduct of the business of any of the Credit Parties or materially detract from the value or use of the Property to which such defects apply.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Existing Second Mortgages” means the collective reference to every Amended and Restated Second Mortgage, Deed of Trust, Assignment of Production, Security Agreement, Fixture Filing, and Financing Statement from the Borrower to the Trustee named therein and the Agent (or any successor thereto), covering the assets of the Borrower located in the continental United States, as amended prior to the Closing Date.

     “Existing Subordinated Credit Agreement” has the meaning given thereto in the Recitals.

     “Federal Funds Effective Rate” means, with respect to each day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that if no such rate is so published on such next succeeding Business Day, the Federal Funds Effective Rate for such day shall be the average rate quoted to the Agent on such day from three Federal funds brokers of recognized standing selected by it.

     “Federal Reserve Board” means the Board of Governors of the Federal Reserve System or any of its successors.

     “Financial Statements” means the audited consolidated balance sheet of Brigham Exploration and its consolidated Subsidiaries as at December 31, 2003 and the related consolidated statement of income, stockholders’ equity and cash flow of Brigham Exploration and its consolidated Subsidiaries for the fiscal year ended on such date.

     “GAAP” means United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the requirements of Section 1.03.

     “General Partner” has the meaning given thereto in the Preamble.

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     “Governmental Authority” means, as to any Person in connection with any subject, any foreign, national, state or provincial governmental authority, or any political subdivision of any state thereof, or any agency, department, commission, board, authority or instrumentality, bureau or court, in each case having jurisdiction over such Person or such Person’s Property in connection with such subject.

     “Guarantor” means Brigham Exploration, the General Partner, and each Subsidiary of the Borrower.

     “Hazardous Substance” means the substances identified as such pursuant to CERCLA and those regulated under any other Environmental Law, including without limitation pollutants, contaminants, petroleum, petroleum products, radionuclides, radioactive materials, and medical and infectious waste.

     “Hazardous Waste” means the substances regulated as such pursuant to any Environmental Law.

     “Hydrocarbon Hedge Agreement” means a swap, collar, floor, cap, option, forward sale or purchase or other contract (excluding sales contracts with fixed or floating prices for Hydrocarbons sold) that is intended to reduce or eliminate the risk of fluctuations in the price of Hydrocarbons.

     “Hydrocarbon Interests” means (a) all oil and gas and/or oil, gas and mineral leases and leasehold interests, fee mineral interests, term mineral interests, subleases, farmouts, royalties, overriding royalties, net profits interests, production payments and similar interests or estates including any reversionary or carried interests relating to any of the foregoing and interests under any exploration agreements, operating agreements and participation agreements, and (b) all production units and drilling and spacing units (and the Properties covered thereby) which may affect all or any portion of such interests including those units and any units created by agreement or designation or under orders, regulations, rules or other official acts of any Federal, state or other governmental body or agency having jurisdiction.

     “Hydrocarbons” means oil, gas, coal seam gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons and all products, by-products, and other substances of value derived, refined or separated therefrom.

     “Incremental Assumption Agreement” shall mean an Incremental Assumption Agreement in form and substance reasonably satisfactory to the Administrative Agent, among the Borrower, the Administrative Agent and one or more Incremental Lenders.

     “Incremental Commitment” shall mean the commitment of any Lender, established pursuant to Section 2.01(c), to make Advances to the Borrower.

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     “Incremental Commitment Amount” shall mean, at any time, the excess, if any, of (a) $10,000,000 over (b) the aggregate amount of all Incremental Commitments established prior to such time pursuant to Section 2.01(c).

     “Independent Engineer” means Cawley, Gillespie & Associates or any other engineering firm reasonably acceptable to either the Agent or the Majority Lenders.

     “Independent Engineering Report” means a report, in form and substance satisfactory to the Agent and each of the Lenders, prepared by an Independent Engineer, addressed to the Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or its Subsidiaries (or to be acquired by the Borrower or any of its Subsidiaries, as applicable) which are or are to be included in the calculation of Total NPV hereunder, which report shall (a) specify the location, quantity, and type of the estimated Proved Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the associated capital expenditures and net operating revenues to be derived from the production and sale of Hydrocarbons from such Proved Reserves based on product price and cost escalation assumptions specified by the Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Agent or any Lender.

     “Intercreditor and Subordination Agreement” has the meaning given thereto in the Recitals.

     “Interest Coverage Ratio” means, for Brigham Exploration and its consolidated Subsidiaries, as of the end of any fiscal quarter, the ratio of (a) EBITDA calculated for the four fiscal quarters then ended, to (b) Interest Expense for such period.

     “Interest Expense” means, for Brigham Exploration and its consolidated Subsidiaries for any period, total interest, letter of credit fees, and other fees and expenses incurred in connection with any Debt for such period, whether paid or accrued, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Interest Hedge Agreements, all as determined in conformity with GAAP.

     “Interest Hedge Agreement” means an interest hedge, rate swap, cap or collar, or similar arrangement between the Borrower and one or more financial institutions providing for the exchange of nominal interest obligations between the Borrower and such financial institution.

     “Interest Payment Date” has the meaning given thereto in Section 2.09(a).

     “Interest Period” means each three-month period thereafter beginning on the first Business Day of a calendar quarter (i.e., a three month period consisting of (i) January, February and March, (ii) April, May and June, (iii) July, August and September, or (iv) October, November and December) and ending on but not including the first Business Day of the succeeding calendar quarter.

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     “Interim Redetermination” is defined in Section 6.22(c).

     “Internal Engineering Report” means a report, in form and substance reasonably satisfactory to the Agent and each Lender, prepared by the Borrower and certified by a Responsible Officer of the General Partner, addressed to the Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or any of its Subsidiaries (or to be acquired by the Borrower or any of its Subsidiaries, as applicable) which are or are to be included in the calculation of Total NPV hereunder, which report shall (a) specify the location, quantity, and type of the estimated Proved Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the associated capital expenditures and net operating revenues to be derived from the production and sale of Hydrocarbons from such Proved Reserves based on product price and cost escalation assumptions specified by the Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Agent or any Lender.

     “Investment” means any investment, made directly or indirectly, in any Person, whether by acquisition of Equity Interests, indebtedness or other obligations or securities or by loan, advance, capital contribution or otherwise.

     “Legal Requirement” means, as to any Person, any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or official interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, including, but not limited to, Regulations D, T, U, and X, which is applicable to such Person.

     “Lenders” has the meaning given thereto in the Preamble.

     “Lien” means any mortgage, lien, pledge, assignment, charge, deed of trust, security interest, hypothecation, preference, deposit arrangement or encumbrance (or other type of arrangement having the practical effect of the foregoing) to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law, or otherwise (including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, synthetic lease, Capital Lease, or other title retention agreement).

     “Limited Partners” means Brigham Holdings I, LLC, a Nevada limited liability company, and Brigham Holdings II, LLC, a Nevada limited liability company.

     “Majority Lenders” means, at any time, the Agent and Lenders holding at least 75% of the then aggregate unpaid principal amount of the Subordinated Notes held by the Lenders.

     “Margin” means a rate per annum equal to 3.90%; provided however, that for the purpose of Advances made to Borrower pursuant to Section 2.05(d)(ii), the term “Margin” means a rate per annum equal to 2.90%.

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     “Material Adverse Change” means (a) a material adverse change in the business, Property (including the Oil and Gas Properties), assets, liabilities or financial condition of the Borrower and its Subsidiaries, taken as a whole, (b) a material adverse effect on any Credit Party’s ability to perform its obligations under this Agreement, any Subordinated Note, or any other Subordinated Loan Document and (c) a material adverse effect on the validity or enforceability against any Credit Party of any of the Subordinated Loan Documents or the rights or remedies of the Agent or the Lenders thereunder.

     “Maturity Date” means March 21, 2009.

     “Maximum Rate” means the maximum nonusurious interest rate under applicable law (determined under such laws after giving effect to any items which are required by such laws to be construed as interest in making such determination, including without limitation if required by such laws, certain fees and other costs).

     “Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA.

     “Non-Proven Reserves” means “Non Proved Reserves” as defined in the Definitions for Oil and Gas Reserves promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.

     “NPV” means, with respect to any Proved Reserves expected to be produced from any Oil and Gas Properties, the net present value, discounted at 9% per annum, of the future net revenues expected to accrue to the Borrower’s and its Subsidiaries’ collective interests in such reserves during the remaining expected economic lives of such reserves. Each calculation of such expected future net revenues shall be made in accordance with the then existing standards of the Society of Petroleum Engineers, provided that in any event:

          (a) appropriate deductions shall be made for severance and ad valorem taxes, and for operating, gathering, transportation and marketing costs required for the production and sale of such reserves,

          (b) appropriate adjustments shall be made for hedging operations; provided that: (i) Hydrocarbon Hedge Agreements with counterparties other than those which at the time such Hydrocarbon Hedge Agreement is made are either (A) a Lender or an Affiliate of a Lender, or (B) a counterparty rated at least A- or better by Standard & Poor’s or A3 or better by Moody’s Investor Services, shall not be taken into account to the extent that such Hydrocarbon Hedge Agreements improve the position of or otherwise benefit the Borrower or any of its Subsidiaries; and (ii) Hydrocarbon Hedge Agreements with counterparties which at the time such Hydrocarbon Hedge Agreement is made are either (A) a Lender or an Affiliate of a Lender, or (B) a counterparty rated at least A- or better by Standard & Poor’s or A3 or better by Moody’s Investor Services, shall not be subject to the limits in clause (c) immediately following,

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          (c) the pricing assumptions used in determining NPV for any particular reserves shall be based upon the following price decks: (i) for natural gas, the Gas Strip Price, provided that if any Gas Strip Price is greater than $4.00 per MMBtu, the price shall be capped at $4.00 per MMBtu, and (ii) for crude oil, the Oil Strip Price, provided that if any Oil Strip Price is greater than $27 per barrel, the price shall be capped at $27 per barrel, and

          (d) the cash-flows derived from the pricing assumptions set forth in clause (c) above shall be further adjusted to account for the historical basis differentials for each month during the preceding 12-month period calculated by comparing realized crude oil and natural gas prices to Cushing, Oklahoma and Henry Hub NYMEX prices for each month during such period.

As used in this definition, “Gas Strip Price” means, for any calendar year following the effective date of an Engineering Report (or, with respect to the initial partial calendar year following the effective date of any Internal Engineering Report, for such partial year), the unweighted average of the quotations for deliveries of natural gas at Henry Hub, Louisiana for each future month during such year (or partial year) for which a futures price is quoted on the New York Mercantile Exchange (provided that for years after the last December for which such a futures price is quoted, the price used shall be the Gas Strip Price for the year ending with such December), and “Oil Strip Price” means, for any calendar year following the effective date of an Engineering Report (or, with respect to the initial partial calendar year following the effective date of any Internal Engineering Report, for such partial year), the unweighted average of the quotations for deliveries of light, sweet crude oil at Cushing, Oklahoma for each future month during such year (or partial year) for which a futures price is quoted on the New York Mercantile Exchange (provided that for years after the last December for which such a futures price is quoted, the price used shall be the Oil Strip Price for the year ending with such December). Each Gas Strip Price and Oil Strip Price shall be determined as of the effective date of the Engineering Report in which such price is to be used, provided that if such effective date is not a Business Day such determination shall be made on the first Business Day thereafter.

     “Oil and Gas Properties” means (a) all Hydrocarbon Interests to which Proven Reserves are properly attributed; (b) all Hydrocarbons in and under and which may be produced, saved, processed or attributable to such Hydrocarbon Interests, including all oil in tanks; (c) all accounts attributable to such Hydrocarbon Interests (including accounts resulting from the sale of Hydrocarbons attributable to such Hydrocarbon Interests at the wellhead); (d) all operating agreements, contracts, agreements, and other contract rights related to such Hydrocarbon Interests and to the production, sale, purchase, exchange, or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all real and personal Property used directly for or held for use directly for the operation, working, development, exploration, or production of such Hydrocarbon Interests, including all oil and gas gathering, treating, storage, processing, and handling equipment and other assets; and (f) all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing.

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     “Partners” means the General Partner and the Limited Partners.

     “Partnership Agreement” means the Agreement of Limited Partnership of the Borrower among the Partners dated as of December 30, 1997, as heretofore or hereafter amended, supplemented or restated from time to time.

     “PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

     “PDNP NPV” means the NPV of the Proved Developed Nonproducing Reserves of the Borrower and its Subsidiaries as calculated in the most recently delivered Engineering Report; provided however, that the Agent may use its own appropriate engineering judgment to assess the reserve-related information furnished by Borrower pursuant to Section 5.15, and may recalculate the PDNP NPV accordingly.

     “PDP NPV” means the NPV of Proved Developed Producing Reserves of the Borrower and its Subsidiaries as calculated in the most recently delivered Engineering Report; provided however, that the Agent may use its own appropriate engineering judgment to assess the reserve-related information furnished by Borrower pursuant to Section 5.15, and may recalculate the PDP NPV accordingly.

     “Permit” means any approval, certificate of occupancy, consent, waiver, exemption, variance, franchise, order, permit, authorization, right or license of or from any Governmental Authority, including without limitation, an Environmental Permit.

     “Permitted Liens” has the meaning given in Section 6.01.

     “Person” means an individual, partnership, corporation (including a business trust), joint stock company, limited liability corporation or company, limited liability partnership, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof or any trustee, receiver, custodian or similar official.

     “Plan” means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Borrower or any member of the Controlled Group and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.

     “Preferred Shareholders” means each of the Persons listed on Schedule 1.01 who hold Capital Stock in Brigham Exploration together with its successors, assigns and transferees of its shares of Capital Stock of Brigham Exploration that are Affiliated Funds of such Preferred Shareholders.

     “Preferred Stock” means the mandatorily redeemable Series A Preferred Stock, $.01 par value, issued by Brigham Exploration prior to the Closing Date.

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     “Prime Rate” means the rate of interest per annum publicly announced from time to time by the Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not intending to be the lowest rate of interest charged by the Agent in connection with extensions of credit to debtors).

     “Property” of any Person means any property or assets (whether real, personal, or mixed, tangible or intangible) of such Person.

     “Pro Rata Share” means, with respect to any Lender, either (a) the ratio (expressed as a percentage) of such Lender’s Commitment at such time to the aggregate Commitments at such time or (b) if the Commitments have been terminated, the ratio (expressed as a percentage) of such Lender’s aggregate outstanding Advances at such time to the aggregate outstanding Advances of all the Lenders at such time.

     “Proved Reserves” means “Proved Reserves” as defined in the Definitions for Oil and Gas Reserves (in this paragraph, the “Definitions”) promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question; “Proved Developed Producing Reserves” means Proved Reserves which are categorized as both “Developed” and “Producing” in the Definitions; “Proved Developed Nonproducing Reserves” means Proved Reserves which are categorized as both “Developed” and “Nonproducing” in the Definitions; and “Proved Undeveloped Reserves” means Proved Reserves which are categorized as “Undeveloped” in the Definitions.

     “Proven Reserves” means, at any particular time, the estimated quantities of Hydrocarbons which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs attributable to Oil and Gas Properties under then existing economic and operating conditions (i.e., prices and costs as of the date the estimate is made).

     “PUD NPV” means the NPV of any Proved Undeveloped Reserves of the Borrower and its Subsidiaries as calculated in the most recently delivered Engineering Report; provided however, that the Agent may use its own appropriate engineering judgment to assess the reserve-related information furnished by Borrower pursuant to Section 5.15, and may recalculate the PUD NPV accordingly.

     “Register” has the meaning set forth in of Section 10.06(c).

     “Regulations D, T, U, and X” mean Regulations D, T, U, and X of the Federal Reserve Board, as the same are from time to time in effect, and all official rulings and interpretations thereunder or thereof.

     “Release” shall have the meaning set forth in CERCLA or under any other Environmental Law.

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     “Response” shall have the meaning set forth in CERCLA or under any other Environmental Law.

     “Responsible Officer” means (a) with respect to any Person that is a corporation, such Person’s Chief Executive Officer, President, Executive Vice President, Chief Financial Officer, or Vice President-Controller, (b) with respect to any Person that is a limited liability company, a manager (or such Person’s Chief Executive Officer, President, Executive Vice President, Chief Financial Officer, or Vice President-Controller, if any) or the Responsible Officer of such Person’s managing member or manager, and (c) with respect to any Person that is a general partnership or a limited liability partnership, the Responsible Officer of such Person’s general partner or partners.

     “Restricted Payment” means, with respect to any Person, any direct or indirect dividend or distribution (whether in cash, securities or other property) or any direct or indirect payment of any kind or character (whether in cash, securities or other property) in consideration for or otherwise in connection with any retirement, purchase, redemption or other acquisition of any Equity Interest of such Person, or any options, warrants or rights to purchase or acquire any such Equity Interest of such Person; provided that the term “Restricted Payment” shall not include any dividend or distribution payable solely in Equity Interests of Brigham Exploration or warrants, options or other rights to purchase such Equity Interests.

     “Scheduled Redetermination” is defined in Section 6.22(c).

     “SEC “ means the U.S. Securities and Exchange Commission.

     “Second Mortgage” means each Existing Second Mortgage, as amended by the Second Mortgage Amendment or any other mortgage or deed of trust executed by any one or more of the Borrower and its Subsidiaries in favor of the Agent for the ratable benefit of the Agent and the Lenders, as the same may be amended, modified, restated or supplemented from time to time and “Second Mortgages” shall mean all of such Second Mortgage Amendments, mortgages and deeds of trust collectively.

     “Second Mortgage Amendment” means each of the mortgage amendments or deed of trust amendments to be entered into on or before the Closing Date to amend the Existing Second Mortgages, in substantially the form of the attached Exhibit F.

     “Second Pledge Agreements” means each of the Second Amended and Restated Second Pledge Agreements substantially in the form of Exhibit G, executed by each of Brigham Exploration, the General Partner and the Borrower, as the same may be amended, modified, restated or supplemented from time to time.

     “Senior Credit Agreement” has the meaning given thereto in the Recitals.

     “Senior Agent” has the meaning given thereto in the Recitals.

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     “Senior Lenders” has the meaning given thereto in the Recitals.

     “Senior Loan Documents” means the Senior Credit Agreement, the notes executed and delivered pursuant to agreements, instruments or documents executed at any time in connection with securing the Senior Obligations, and each other agreement, instrument, or document executed by any Credit Party or any of their officers at any time in connection with the Senior Credit Agreement.

     “Senior Obligations” means the “Obligations” as defined in the Senior Credit Agreement.

     “Solvent” means, with respect to any Person as of the date of any determination, that on such date (a) the fair value of the Property of such Person (both at fair valuation and at present fair saleable value) is greater than the total liabilities, including contingent liabilities, of such Person, (b) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations, and other commitments as they mature in the normal course of business, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s Property would constitute unreasonably small capital after giving due consideration to current and anticipated future capital requirements and current and anticipated future business conduct and the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, such liabilities shall be computed at the amount that, in light of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

     “Subordinated Loan Documents” means this Agreement, the Subordinated Notes, the Subordinated Security Instruments, the Intercreditor and Subordination Agreement and each other agreement, instrument, or document executed by any Credit Party or any of their officers at any time in connection with this Agreement.

     “Subordinated Note” means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of the attached Exhibit E, evidencing indebtedness of the Borrower to such Lender resulting from Advances owing to such Lender.

     “Subordinated Obligations” means all principal, interest, fees, reimbursements, indemnifications, and other amounts payable by any Credit Party to the Agent or the Lenders under the Subordinated Loan Documents.

     “Subordinated Security Instruments” means, collectively, (a) the Second Mortgages, (b) the Second Pledge Agreements, (c) each other agreement, instrument or document executed at any time in connection with the Second Pledge Agreements and the Second Mortgages, and (d) each other agreement, instrument or document executed at any time in connection with securing the Subordinated Obligations.

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     “Subsidiary” of a Person means any corporation or other entity of which more than 50% of the outstanding Equity Interests having ordinary voting power under ordinary circumstances to elect a majority of the board of directors or similar governing body of such corporation or other entity (irrespective of whether at such time Equity Interests of any other class or classes of such corporation or other entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person. Unless otherwise indicated herein, each reference to the term “Subsidiary” shall mean a Subsidiary of the Borrower.

     “Termination Event” means (a) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower or any of its Affiliates from a Plan during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

     “Total Debt” means all Debt of the Borrower and its Consolidated Subsidiaries; excluding however, any redeemable preferred stock that is permitted to be issued pursuant to Section 6.02(c).

     “Total NPV” means, as of the date of any determination, the sum of (a) 100% of PDP NPV, plus (b) 100% of PDNP NPV, plus (c) 100% of PUD NPV, as each has been most recently determined (including any recalculations of PDP NPV, PDNP NPV and/or PUD NPV made by the Agent in accordance herewith). No category of reserves other than Proved Reserves shall be taken into account in determining Total NPV.

     “Voting Stock” means, with respect to any Person, securities of any class or classes of Capital Stock or other interests (including partnership interests) in such Person entitling the holders thereof (whether at all times or at the time that such class of Capital Stock has voting power by reason of the happening of any contingency) to vote in the election of members of the board of directors or comparable body of such Person.

     “Wells” is defined in Section 5.15(d).

     Section 1.02 Computation of Time Periods. In this Agreement, with respect to the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”.

     Section 1.03 Accounting Terms; Changes in GAAP. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the

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Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof) be prepared, in accordance with GAAP applied on a basis consistent with those used in the preparation of the Financial Statements. In addition, all calculations and defined accounting terms used herein shall, unless expressly provided otherwise, when referring to any Person, refer to such Person on a consolidated basis and mean such Person and its consolidated subsidiaries.

     Section 1.04 Miscellaneous. Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time, unless otherwise specified. The words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “including” means “including, without limitation,”. Paragraph headings have been inserted in this Agreement as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Agreement and shall not be used in the interpretation of any provision of this Agreement. All Exhibits and Schedules attached to this Agreement are a part hereof for all purposes. Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.

ARTICLE II

CREDIT FACILITIES

     Section 2.01 Advances.

     (a) Each Lender severally agrees, on the terms and conditions set forth in this Agreement to renew and extend the Advance outstanding under the Existing Subordinated Credit Agreement on the Closing Date in a ratable amount for each Lender not to exceed such Lender’s Commitment. Principal payments made after the Closing Date may not be reborrowed.

     (b) Subordinated Notes. The indebtedness of the Borrower to each Lender resulting from the Advances owing to such Lender shall be evidenced by a Subordinated Note of the Borrower payable to the order of such Lender in an amount equal to such Lender’s Commitment.

     (c) Increase in Commitments.

          (i) The Borrower may, by written notice to the Agent from time to time after the Closing Date, request that the aggregate Commitments be increased by an amount not to exceed the Incremental Commitment Amount at such time by delivering a request to the Agent, who shall deliver a copy thereof to each Lender. Such notice shall set forth (A) the amount of the requested increase in the aggregate Commitments (which shall be in minimum increments of U.S.$1,000,000 and a minimum amount of U.S.$5,000,000 or equal to the remaining Incremental

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Commitment Amount), (B) the date on which such increase is requested to become effective (which shall not be less than 10 Business Days nor more than 60 days after the date of such notice and which, in any event, must be on or prior to the Maturity Date), and (C) the Lenders who have agreed to increase their Commitment by all or a portion of the offered amount (each Lender so agreeing being an “Increasing Lender”) or one or more banks or other entities who have agreed to extend the Commitment by all or a portion of the offered amount (any such bank or other entity referred to in this clause (c) being called an “Augmenting Lender” and, together with the Increasing Lenders, the “Incremental Lenders”) in an aggregate amount equal to the unsubscribed amount; provided that each Augmenting Lender shall be subject to the approval of the Agent (which approval shall not be unreasonably withheld or delayed). Any increase in the aggregate Commitments may be made in an amount which is less than the increase requested by the Borrower if the Borrower is unable to arrange for, or chooses not to arrange for, Incremental Lenders.

          (ii) The Borrower and each Incremental Lender shall execute and deliver to the Agent an Incremental Assumption Agreement and such other documentation as the Agent shall reasonably specify to evidence the Incremental Commitment of such Incremental Lender or its status as a Lender hereunder. The Agent shall promptly notify each Lender as to the effectiveness of each Incremental Assumption Agreement. Each of the parties hereto hereby agrees that, upon the effectiveness of any Incremental Assumption Agreement, this Agreement shall be deemed amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Incremental Commitment evidenced thereby.

          (iii) Each of the parties hereto hereby agrees that the Agent may take any and all actions as may be reasonably necessary to ensure that, after giving effect to any increase in the aggregate Commitments pursuant to this Section 2.01(c), the outstanding Advances (if any) are held by the Lenders in accordance with their new Pro Rata Shares. This may be accomplished at the discretion of the Agent (A) by requiring the outstanding Advances to be prepaid with the proceeds of a new Borrowing, (B) by causing Non-Increasing Lenders to assign portions of their outstanding Advances to Incremental Lenders, (C) by permitting the Borrowings outstanding at the time of any increase in the aggregate Commitments pursuant to this Section 2.01(c) to remain outstanding until the last days of the respective Interest Periods therefor, even though the Lenders would hold such Borrowings other than in accordance with their new Pro Rata Shares, or (D) by any combination of the foregoing. Any prepayment or assignment described in this paragraph (c) shall be subject to indemnification by the Borrower pursuant to Section 2.12, but otherwise without premium or penalty.

          (iv) Notwithstanding the foregoing, no increase in the aggregate Commitments (or in the Commitment of any Lender) or addition of a new Lender shall become effective under this Section 2.01(c) unless, (A) on the date of such increase, the conditions set forth in Section 3.02 shall be satisfied and the Agent shall have received a certificate to that effect dated such date and executed by a Responsible Officer of the Borrower and (B) the Agent shall have received (with sufficient copies for each of the Lenders) an officer’s certificate consistent with those delivered on the Closing Date (or other supplemental resolutions) but dated as of the date

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of such increase under clauses (a)(ix) through (xii) of Section 3.01, which certificate shall include a certification from a Responsible Officer that the resolutions delivered on the Closing Date remain in full force and effect and authorize the applicable increase in the aggregate commitments.

     (d) Agent Reliance. Unless the Agent shall have received notice from a Lender before the date of any Borrowing that such Lender shall not make available to the Agent such Lender’s Pro Rata Share of a Borrowing, the Agent may assume that such Lender has made its Pro Rata Share of such Borrowing available to the Agent on the date of such Borrowing in accordance with this Agreement and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made its Pro Rata Share of such Borrowing available to the Agent, such Lender and the Borrower severally agree to immediately repay to the Agent on demand such corresponding amount, together with interest on such amount, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable on such day to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Effective Rate for such day. If such Lender shall repay to the Agent such corresponding amount and interest as provided above, such corresponding amount so repaid shall constitute such Lender’s Advance as part of such Borrowing for purposes of this Agreement even though not made on the same day as the other Advances comprising such Borrowing.

     (e) Lender Obligations Several. The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, to make its Advance on the date of such Borrowing. No Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

     Section 2.02 Intentionally Omitted.

     Section 2.03 Intentionally Omitted.

     Section 2.04 Reduction of the Commitments.

     (a) The Borrower shall have the right, upon at least five Business Days’ irrevocable notice to the Agent, to terminate in whole or reduce ratably in part the unused portion of the Commitments; provided that each partial reduction shall be in the aggregate amount of $1,000,000 or in integral multiples of $1,000,000 in excess thereof.

     (b) Any reduction and termination of the Commitments pursuant to this Section 2.04 shall be applied ratably to each Lender’s Commitment and shall be permanent, with no obligation of the Lenders to reinstate such Commitments.

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     Section 2.05 Prepayment of Advances.

     (a) Optional. The Borrower may prepay the Advances, without premium or penalty, after giving, by 12:00 p.m. (New York time) (i) in the case of Eurodollar Rate Advances, at least three Business Days’ or (ii) in the case of Base Rate Advances on the same Business Day, irrevocable prior written notice to the Agent stating the proposed date and aggregate principal amount of such prepayment. If any such notice is given, the Borrower shall prepay the Advances in an aggregate principal amount equal to the amount specified in such notice, together with accrued interest to the date of such prepayment on the principal amount prepaid and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date; provided that each partial prepayment shall be made in an amount not less than $1,000,000 and in integral multiples of $500,000 in excess thereof (or the remaining aggregate principal balance outstanding). Full prepayments of the Subordinated Obligations are permitted without restriction of amounts. Notwithstanding the foregoing, no prepayment of the Subordinated Obligations that is inconsistent with the rights and obligations of the Senior Agent and the Senior Lenders under the Intercreditor and Subordination Agreement shall be permitted.

     (b) Reduction of Commitments. On the date of each reduction of the aggregate Commitments pursuant to Section 2.04, the Borrower agrees to make a prepayment in respect of the outstanding amount of the Advances to the extent, if any, that the aggregate unpaid principal amount of the Advances exceeds the aggregate Commitments, as so reduced. Each prepayment pursuant to this Section 2.05(b) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment. Each prepayment under this Section 2.05(b) shall be applied to the Advances as provided in Section 2.10(a).

     (c) No Additional Right. The Borrower shall have no right to prepay any principal amount of any Advance except as provided in this Section 2.05, and all notices given pursuant to this Section 2.05 shall be irrevocable and binding upon the Borrower.

     (d) Illegality. If any Lender shall notify the Agent and the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for such Lender or its Eurodollar Lending Office to perform its obligations under this Agreement to maintain any Eurodollar Rate Advances of such Lender then outstanding hereunder, (i) the Borrower shall, no later than 12:00 p.m. (New York time) (A) if not prohibited by law, on the last day of the Interest Period for each outstanding Eurodollar Rate Advance made or maintained by such Lender or (B) if required by such notice, on the second Business Day following its receipt of such notice, prepay all of the Eurodollar Rate Advances made or maintained by such Lender then outstanding, together with accrued interest on the principal amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date, and (ii) such Lender shall simultaneously make a Base Rate Advance to the Borrower on such date in an amount equal to the aggregate principal amount of the Eurodollar Rate Advances prepaid to such Lender, with such Advance to

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accrue interest at a rate equal to the sum of the Base Rate from time to time in effect thereafter plus the Margin.

     Section 2.06 Repayment of Advances. The Borrower shall repay to the Agent for the ratable benefit of the Lenders the outstanding principal amount of each Advance, together with any accrued interest on the Maturity Date or such earlier date pursuant to Section 7.02 or Section 7.03.

     Section 2.07 Intentionally Omitted.

     Section 2.08 Intentionally Omitted.

     Section 2.09 Interest.

     (a) The Borrower shall pay interest on the unpaid principal amount of each Advance made by each Lender from the date of such Advance until such principal amount shall be paid in full, at a rate per annum equal at all times during the Interest Period for such Advance to the Eurodollar Rate (or in the case of Section 2.05(d), the Base Rate) for such Interest Period plus the Margin in effect from time to time, payable on the ending day of such Interest Period, and, in the case of six-month Interest Periods, on the day which occurs during such Interest Period three months from the first day of such Interest Period (each, an “Interest Payment Date”), provided that:

          (i) upon the occurrence and continuance of an Event of Default, such Advance shall bear interest from the date on which such Event of Default occurred until such Event of Default has been cured or waived, payable on demand, at a rate per annum equal at all times to the rate required to be paid on such Advance immediately prior to the occurrence of such Event of Default plus 2.00%,

          (ii) any amount of principal, interest, fees or any other amount which is not paid when due (whether at stated maturity, by acceleration, or otherwise) shall bear interest from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to the Eurodollar Rate (or in the case of Section 2.05(d), the Base Rate) in effect from time to time plus the Margin plus 2.00%, and

          (iii) any rate charged pursuant to this Section 2.09(b) shall never exceed the Maximum Rate.

     (b) The Borrower shall pay to each Lender, so long as any such Lender shall be required under regulations of the Federal Reserve Board to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the effective date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest

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Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Advance. Such additional interest payable to any Lender shall be determined by such Lender and notified to the Borrower through the Agent (such notice to include the calculation of such additional interest, which calculation shall be conclusive in the absence of manifest error).

     Section 2.10 Payments and Computations.

     (a) Payment Procedures. The Borrower shall make each payment under this Agreement and under the Subordinated Notes not later than 12:00 p.m. (New York time) on the day when due in Dollars to the Agent at the location referred to in the Subordinated Notes (or such other location as the Agent shall designate in writing to the Borrower) in same day funds without deduction, setoff, or counterclaim of any kind. The Agent shall promptly thereafter cause to be distributed like funds relating to the payment of principal, interest or fees ratably (other than amounts payable solely to the Agent or a specific Lender pursuant to Section 2.13, Section 2.14, Section 9.05 or Section 10.07, but after taking into account payments effected pursuant to Section 10.04) in accordance with each Lender’s Pro Rata Share to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.

     (b) Computations. All computations of interest based on the Base Rate and of fees shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate and the Federal Funds Effective Rate shall be made by the Agent, on the basis of a year of 360 days, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Agent of an interest rate or fee shall be conclusive and binding for all purposes, absent manifest error.

     (c) Non-Business-Day Payments. Whenever any payment shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

     (d) Agent Reliance. Unless the Agent shall have received written notice from the Borrower prior to the date on which any payment is due to the Lenders that the Borrower shall not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender,

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together with interest, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Effective Rate for such day.

     Section 2.11 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set off, or otherwise) on account of the Advances made by it in excess of its Pro Rata Share of payments on account of the Advances obtained by all the Lenders, such Lender shall notify the Agent and forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender’s ratable share (according to the proportion of (a) the amount of the participation sold by such Lender to the purchasing Lender as a result of such excess payment to (b) the total amount of such excess payment) of such recovery, together with an amount equal to such Lender’s ratable share (according to the proportion of (i) the amount of such Lender’s required repayment to the purchasing Lender to (ii) the total amount of all such required repayments to the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.11 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

     Section 2.12 Breakage Costs. If (a) any default by the Borrower in making any borrowing or continuation of any Eurodollar Rate Advance in accordance with the provisions of this Agreement, (b) any payment of any Eurodollar Rate Advance is made prior to the last day of the Interest Period for such Advance, whether as a result of any payment pursuant to Section 2.05, the acceleration of the maturity of the Subordinated Notes pursuant to Article VII, or otherwise, or (c) any default by the Borrower in making any prepayment of any Eurodollar Rate Advance after the Borrower has given notice thereof in accordance with the provisions of this Agreement, the Borrower shall, within 10 days of any written demand sent by any Lender to the Borrower through the Agent, pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, out-of-pocket costs or expenses which it may reasonably incur as a result of such payment or nonpayment, including, without limitation, any loss, cost, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Advance.

     Section 2.13 Increased Costs.

     (a) Eurodollar Rate Advances. If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the

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compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding, or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), immediately pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost and detailing the calculation of such cost submitted to the Borrower and the Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error.

     (b) Capital Adequacy. If any Lender or the Agent determines in good faith that compliance with any law or regulation or any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender’s commitment to lend and other commitments of this type, then, upon 30 days’ prior written notice by such Lender (with a copy of any such demand to the Agent), the Borrower shall immediately pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender for the reduced rate of return on that capital of such Lender (but without duplication of amounts, if any, paid by the Borrower pursuant to Section 2.13(a) above), in light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender’s commitment to lend under this Agreement. A certificate as to such amounts and detailing the calculation of such amounts submitted to the Borrower by such Lender shall be conclusive and binding for all purposes, absent manifest error.

     Section 2.14 Taxes.

     (a) No Deduction for Certain Taxes. Any and all payments by the Borrower shall be made, in accordance with Section 2.10, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or otherwise resides for tax purposes or maintains any Applicable Lending Office or any political subdivision of the jurisdiction, and any branch profits taxes imposed by the United States of America or any similar tax imposed by another jurisdiction in which the Borrower is located, and any withholding or similar taxes imposed by the United States of America, pursuant to laws in effect as of the date the Lender becomes a party to this Agreement, upon any payments to or for the benefit of such Lender under this Agreement (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”) and, in the case of each Lender, Taxes by the jurisdiction of such Lender’s Applicable Lending Office or any political subdivision of such jurisdiction. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to

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additional sums payable under this Section 2.14), such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made; provided that if the Borrower’s obligation to deduct or withhold Taxes is caused solely by such Lender’s or the Agent’s failure to provide the forms described in Section 2.14(d) and such Lender or the Agent could have provided such forms, no such increase shall be required; (ii) the Borrower shall make such deductions; and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. After a Lender learns of the imposition of Taxes, such Lender will promptly notify Borrower of such Taxes.

     (b) Other Taxes. In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Subordinated Notes, or the other Subordinated Loan Documents (hereinafter referred to as “Other Taxes”).

     (c) Indemnification. The Borrower indemnifies each Lender and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender or the Agent (as the case may be) and any liability (including interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted unless the payment of such Taxes or Other Taxes were not correctly or legal asserted and such Lender’s payment of such Taxes or Other Taxes was the result of its gross negligence or willful misconduct. Each payment required to be made by the Borrower in respect of this indemnification shall be made to the Agent for the benefit of any party claiming such indemnification within 30 days from the date the Borrower receives written demand therefor from the Agent on behalf of itself as Agent or any such Lender. Within 30 days after receipt of a written request by Borrower, a Lender shall, at Borrower’s expense, make a claim to any applicable Governmental Authority for a refund if, in the judgment of such Lender, the making of such claim will not be adverse to it in respect of any taxes as to which it has been indemnified by Borrower and in this Section 2.14 If any Lender, the Agent receives a refund in respect of any Taxes paid by the Borrower under this Section 2.14, such Lender or the Agent, as the case may be, shall promptly pay to the Borrower the Borrower’s share of such refund. This paragraph shall not be construed to require the Agent or any Lender to make available its tax returns (or any other information relating to its taxes) to the Borrower or any other Person.

     (d) Foreign Lender Withholding Exemption. Each Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that upon the request of the Borrower it shall deliver to the Borrower and the Agent (i) two duly completed copies of United States Internal Revenue Service Form W8-ECI, W8-IMY or W8-BEN or successor

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applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Subordinated Notes payable to it, without deduction or withholding of any United States federal income taxes, (ii) if applicable, an Internal Revenue Service Form W 9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax, and (iii) any other governmental forms which are necessary or required under an applicable tax treaty or otherwise by law to reduce or eliminate any withholding tax, which have been reasonably requested by the Borrower. If an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any delivery required by the preceding sentence would otherwise be required which renders all such forms inapplicable or which would prevent any Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-9 establishing an exemption from United States backup withholding tax, such Lender shall not be required to deliver such form. Each Lender further agrees to deliver to Borrower and the Agent (i) renewals or additional copies of such forms (or any successor forms) on or before the date that such forms expire or become obsolete, and (ii) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower. The Borrower shall withhold tax at the rate and in the manner required by the laws of the United States with respect to payments made to a Lender failing to timely provide the requisite Internal Revenue Service forms. For any period with respect to which a Lender has failed to provide the Borrower and the Agent with the appropriate form pursuant to this Section 2.14(d) (unless such failure is due to a change in treaty or Legal Requirement occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 2.14(c) with respect to Taxes imposed by the United States which taxes would not have been imposed but for such failure to provide such forms; provided that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonable request to assist such Lender to recover such Taxes.

ARTICLE III

CONDITIONS OF LENDING

     Section 3.01 Conditions Precedent to Closing Date. The Closing Date shall occur upon the satisfaction of the following conditions precedent that:

     (a) Documentation. The Agent shall have received the following duly executed by all the parties thereto, in form and substance satisfactory to the Agent and the Lenders and, where applicable, in sufficient copies for each Lender:

          i. this Agreement;

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          ii. a Subordinated Note payable to the order of each Lender in the amount of its Commitment;

          iii. a Second Pledge Agreement executed by Brigham Exploration and the General Partner;

          iv. the Second Mortgage Amendments and any additional Second Mortgages that may be required pursuant to Section 5.11;

          v. copies of insurance policies or certificates thereof that name the Senior Agent as loss payee or additional insured, as applicable, and the Agent as additional insured, certified by the Borrower’s insurance broker as true and correct copies thereof, and which are otherwise satisfactory to the Agent;

          vi. a favorable opinion dated as of the Closing Date of Thompson & Knight L.L.P., counsel to the Credit Parties, in form and substance satisfactory to the Agent covering such matters as any Lender through the Agent may reasonably request;

          vii. a favorable opinion dated as of the date of the Closing Date of Dubberstein, Heinen & Morris, P.C., Oklahoma counsel to the Credit Parties, in form and substance reasonably satisfactory to the Agent;

          viii. copies, certified as of the date of this Agreement by a Responsible Officer or the secretary or an assistant secretary of the General Partner (on behalf of the Borrower) of (A) the resolutions of the applicable governing body of the Borrower approving the Subordinated Loan Documents to which the Borrower is a party, (B) the organizational documents of the Borrower, and (C) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Subordinated Notes, the Subordinated Security Instruments and the other Subordinated Loan Documents to which the Borrower is a party;

          ix. certificates of a Responsible Officer or the secretary or an assistant secretary of the General Partner certifying the names and true signatures of the officers of the General Partner authorized to sign on behalf of the Borrower this Agreement, the Subordinated Notes, the Subordinated Security Instruments and the other Subordinated Loan Documents to which the Borrower is a party;

          x. copies, certified as of the date of this Agreement by a Responsible Officer or the secretary or an assistant secretary of each Guarantor (A) the resolutions of the applicable governing body of such Guarantor approving the Subordinated Loan Documents to which it is a party, (B) the organizational documents of such Guarantor, and (C) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Subordinated Security Instruments, and the other Subordinated Loan Documents to which such Guarantor is a party;

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          xi. a certificate of the secretary or an assistant secretary of each Guarantor certifying the names and true signatures of officers of such Guarantor authorized to sign this Agreement, the Subordinated Security Instruments and the other Subordinated Loan Documents to which such Guarantor is a party;

          xii. certificates from the appropriate Governmental Authority certifying as to the good standing, existence and authority of each of the Credit Parties in all jurisdictions where required by the Agent;

          xiii. a certificate dated as of the date of this Agreement from the Responsible Officer of the General Partner stating that (A) all representations and warranties of the Borrower set forth in this Agreement are true and correct in all material respects; (B) no Default has occurred and is continuing; and (C) the conditions in this Section 3.01 have been met;

          xiv. the Intercreditor and Subordination Agreement;

          xv. an amendment fee in the amount of 0.15% of the aggregate Commitments for distribution to Lenders in accordance with their pro rata shares;

          xvi. results of lien, tax and judgment searches of the UCC Records of the Secretary of State and applicable counties of the States of Delaware, Oklahoma and Texas from a source acceptable to the Agent and reflecting no Liens against any of the Collateral as to which perfection of a Lien is accomplished by the filing of a financing statement other than in favor of the Agent, other than Permitted Liens;

          xvii. appropriate UCC-1 or UCC-3 Financing Statements covering the Collateral for filing with the appropriate authorities and any other documents, agreements or instruments necessary to create an Acceptable Security Interest in such Collateral;

          xviii. payment of the reasonable fees and disbursements of Baker & McKenzie, LLP relating to this Agreement (provided that if such fees and disbursements have not been invoiced to the Borrower at least one day prior to the delivery of this Agreement, such payment will not be a condition to the effectiveness hereof and the Borrower will pay such fees and disbursements promptly after receipt of such an invoice);

          xix. such other documents, governmental certificates, agreements and lien searches as the Agent or any Lender may reasonably request.

     (b) Due Diligence. The Agent and the Lenders shall have completed satisfactory due diligence review of the assets, liabilities, business, operations and condition (financial or otherwise) of the Borrower and its Subsidiaries, including, but not limited, to a review of their Oil and Gas Properties, Subordinated Debt, and all legal, financial, accounting, governmental, environmental, tax and regulatory matters, and fiduciary aspects of the proposed financing.

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     (c) Payment of Fees. On the date of this Agreement, the Borrower shall have paid all costs and expenses that have been invoiced and are payable pursuant to Section 10.04.

     (d) Delivery of Financial Statements. The Agent and the Lenders shall have received true and correct copies of (i) the Financial Statements, and (ii) such other financial information as the Agent or any Lender may reasonably request.

     (e) No Default. No Default shall have occurred and be continuing.

     (f) Representations and Warranties. The representations and warranties contained in Article IV and in each other Subordinated Loan Document shall be true and correct in all respects.

     (g) Material Adverse Change. No event or circumstance that could cause a Material Adverse Change shall have occurred.

     (h) No Proceeding or Litigation; No Injunctive Relief. Except as described in Schedule 4.07, no action, suit, investigation or other proceeding (including, without limitation, the enactment or promulgation of a statute or rule) by or before any arbitrator or any Governmental Authority shall be threatened or pending and no preliminary or permanent injunction or order by a state or federal court shall have been entered against the Borrower or any of its Subsidiaries.

     (i) Consents, Licenses, Approvals, etc. The Agent shall have received true copies (certified to be such by a Responsible Officer of the Borrower or other appropriate Credit Party) of all consents, licenses and approvals required in accordance with applicable Legal Requirements, or in accordance with any document, agreement, instrument or arrangement to which any Credit Party is a party, in connection with the execution, delivery, performance, validity and enforceability of this Agreement and the other Subordinated Loan Documents. In addition, the Credit Parties shall have all such material consents, licenses and approvals required in connection with the continued operation of the Credit Parties, and such approvals shall be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on this Agreement and the actions contemplated hereby.

     (j) Senior Credit Agreement. The conditions precedent set forth in Section 3.01 of the Senior Credit Agreement shall have been contemporaneously herewith satisfied or waived as of the Closing Date. The Borrower shall have delivered copies of the Senior Loan Documents on or before the Closing Date.

     (k) Subordinated Security Instruments. The Agent shall have received all appropriate evidence required by the Agent and the Lenders in their sole discretion necessary to determine that arrangements have been made for the Agent (for its benefit and the benefit of the Lenders) to have an Acceptable Security Interest in the Collateral and that all actions or filings necessary to protect, preserve and validly perfect such Liens have been made, taken or obtained (or will be

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upon the filing and recording of the appropriate Subordinated Security Instruments), as the case may be, and are in full force and effect.

     (l) Title. The Agent shall be satisfied in its sole discretion with the title to the Oil and Gas Properties included in the Borrowing Base and that such Oil and Gas Properties constitute the percentage specified in the first sentence of Section 5.13.

     Section 3.02 Conditions Precedent to All Borrowings. The obligation of each Lender to make an Advance on the occasion of each Borrowing shall be subject to the further conditions precedent that on the date of such Borrowing, the following statements shall be true (and each of the giving of the applicable notice of borrowing and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true):

     (a) the representations and warranties contained in Article IV of this Agreement and the representations and warranties contained in the Subordinated Security Instruments, the Guaranties, and each of the other Subordinated Loan Documents are true and correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds from such Borrowing, as though made on and as of such date (unless such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respect as of such earlier date); and

     (b) no Default has occurred and is continuing or would result from such Borrowing or from the application of the proceeds therefrom.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

     Each Credit Party jointly and severally represents and warrants as follows:

     Section 4.01 Corporate Existence; Subsidiaries. Each of the Credit Parties is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and in good standing and qualified to do business in each jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification and where the failure to so qualify could reasonably be expected to cause a Material Adverse Change. As of the Closing Date, the Credit Parties have no Subsidiaries other than those listed on Schedule 4.01.

     Section 4.02 Corporate Power. The execution, delivery, and performance by each Credit Party of this Agreement, the Subordinated Notes, and the other Subordinated Loan Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby (a) are within such Credit Party’s powers, (b) have been duly authorized by all necessary governing action, (c) do not contravene (i) such Credit Party’s governance documents

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or (ii) any Legal Requirement or any material contractual restriction binding on or affecting such Credit Party, and (d) will not result in or require the creation or imposition of any Lien upon any of the material Property of any Credit Party prohibited by this Agreement. At the time of each Advance, such Advance and the use of the proceeds of such Advance will (A) be within the Borrower’s limited partnership powers, (B) have been duly authorized by all necessary partnership action, (C) not contravene (i) the Borrower’s limited partnership agreement or other organizational documents or (ii) any Legal Requirement or any material contractual restriction of any material agreement binding on or affecting the Borrower and (D) not result in or require the creation or imposition of any Lien upon any of the material Property of any Credit Party prohibited by this Agreement.

     Section 4.03 Authorization and Approvals. No consent, order, authorization, or approval or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required for the due execution, delivery, and performance by any Credit Party of this Agreement, the Subordinated Notes, or the other Subordinated Loan Documents to which such Credit Party is a party or the consummation of the transactions contemplated hereby or thereby. At the time of each Borrowing, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required for such Borrowing or the use of the proceeds of such Borrowing.

     Section 4.04 Enforceable Obligations. This Agreement, the Subordinated Notes, and the other Subordinated Loan Documents to which each Credit Party is a party have been duly executed and delivered by such Credit Party. Each Subordinated Loan Document to which each Credit Party is a party is the legal, valid, and binding obligation of such Credit Party enforceable against such Credit Party in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors’ rights generally and by general principles of equity.

     Section 4.05 Financial Statements.

     (a) The Borrower has delivered to the Agent and the Lenders the Financial Statements, and the Financial Statements are correct and complete in all material respects and present fairly the consolidated financial condition of the Credit Parties as of their respective dates and for their respective periods in accordance with GAAP, applied on a consistent basis. As of the date of the Financial Statements, there were no material Debt, trade payables, contingent obligations, liabilities for taxes, unusual forward or long term commitments, or unrealized or anticipated losses of any Credit Party, except as disclosed therein and adequate reserves for such items have been made in accordance with GAAP.

     (b) Since December 31, 2003, no event or circumstance that could reasonably be expected to cause a Material Adverse Change has occurred.

     (c) Each of the Credit Parties is Solvent.

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     Section 4.06 True and Complete Disclosure. All written information (whether delivered before or after the Closing Date) furnished by or on behalf of any Credit Party to any Lender or the Agent for purposes of or in connection with this Agreement, any other Subordinated Loan Document or any transaction contemplated hereby or thereby, when taken as a whole, is true and accurate in all material respects on the date as of which such information is dated or certified (or, if not dated and certified, as of the date as of which such information is provided) and does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein not materially misleading at such time. All projections, estimates and pro-forma financial information furnished by the Borrower were prepared on the basis of assumptions, data, information, tests, or conditions believed to be reasonable at the time such projections, estimates and pro-forma financial information were furnished, but the Credit Parties do not represent and warrant that such projections, estimates or pro forma information is (or will ultimately prove to have been) accurate.

     Section 4.07 Litigation. There is no pending or, to the knowledge of any Responsible Officer of any Credit Party, threatened action or proceeding affecting any of the Credit Parties before any court, Governmental Authority or arbitrator which (a) both (i) involves the possibility of any judgment or liability against any Credit Party not fully covered by insurance (except for normal deductibles) and (ii) could reasonably be expected to cause a Material Adverse Change or (b) purports to affect the legality, validity, binding effect or enforceability of this Agreement, any Subordinated Note, or any other Subordinated Loan Document. Additionally, there is no pending or, to the knowledge of any Responsible Officer of any Credit Party, threatened action or proceeding instituted against any Credit Party which seeks to adjudicate such Credit Party as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its Property.

     Section 4.08 Taxes.

     (a) Reports and Payments. All Returns (as defined below in Section 4.08(c)) required to be filed by or on behalf of any Credit Party or any member of the Controlled Group (hereafter collectively called the “Tax Group”) have been duly filed on a timely basis or appropriate extensions have been obtained and such Returns are and will be true, complete and correct in all material respects; and all Taxes shown to be payable on the Returns or on subsequent assessments with respect thereto will have been paid in full on a timely basis, and no other Taxes will be payable by the Tax Group with respect to items or periods covered by such Returns, except where any obligation is being contested in good faith and by appropriate proceedings and after adequate reserves for such items have been made in accordance with GAAP. The reserves for accrued Taxes reflected in the financial statements delivered to the Lenders under this Agreement are adequate in the aggregate for the payment of all unpaid Taxes, whether or not disputed, for the period ended as of the date thereof and for any period prior thereto, and for

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which the Tax Group may be liable in its own right, as withholding agent or as a transferee of the assets of, or successor to, any Person.

     (b) Taxes Definition. “Taxes” in this Section 4.08 shall mean all taxes, charges, fees, levies, or other assessments imposed by any federal, state, local, or foreign taxing authority, including without limitation, income, gross receipts, excise, real or personal property, sales, occupation, use, service, leasing, environmental, value added, transfer, payroll, and franchise taxes (and including any interest, penalties, or additions to tax attributable to or imposed on with respect to any such assessment).

     (c) Returns Definition. “Returns” in this Section 4.08 shall mean any federal, state, local, or foreign report, estimate, declaration of estimated Tax, information statement or return relating to, or required to be filed in connection with, any Taxes, including any information return or report with respect to backup withholding or other payments of third parties.

     Section 4.09 Pension Plans. All Plans are in compliance in all material respects with all applicable provisions of ERISA. No Termination Event has occurred with respect to any Plan, and each Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. No “accumulated funding deficiency” (as defined in Section 302 of ERISA) has occurred and there has been no excise tax imposed under Section 4971 of the Code. No Reportable Event has occurred with respect to any Multiemployer Plan, and each Multiemployer Plan has complied with and been administered in all material respects with applicable provisions of ERISA and the Code. The present value of all benefits vested under each Plan (based on the assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed the value of the assets of such Plan allocable to such vested benefits. None of the Credit Parties or any member of the Controlled Group has had a complete or partial withdrawal from any Multiemployer Plan for which there is any withdrawal liability. As of the most recent valuation date applicable thereto, none of the Credit Parties or any member of the Controlled Group would become subject to any liability under ERISA if any Credit Party or any member of the Controlled Group received notice that any Multiemployer Plan is insolvent or in reorganization. Based upon GAAP existing as of the date of this Agreement and current factual circumstances, no Credit Party has reason to believe that the annual cost during the term of this Agreement to any Credit Party or any other member of the Controlled Group for post-retirement benefits to be provided to the current and former employees of the Borrower or any member of the Controlled Group under welfare benefit plans (as defined in Section 3(1) of ERISA) could, in the aggregate, reasonably be expected to cause a Material Adverse Change.

     Section 4.10 Condition of Property; Casualties.

     (a) Subject to the matters set forth in Schedule 4.10, each of the Borrower and its Subsidiaries has good and indefeasible title to all of its Oil and Gas Properties evaluated in the most recently delivered Engineering Report, free and clear of all Liens except for Permitted Liens. Brigham Exploration has good and defensible title to all of the Equity Interests in the General Partner and, directly and indirectly, all of the ownership interests in the Limited

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Partners, except for Permitted Liens. Each of the General Partner and the Limited Partners has good and defensible title to all of the Equity Interests in the Borrower, except for Permitted Liens.

     (b) The quantum and nature of the interest of the Borrower and its Subsidiaries in and to its Hydrocarbon Interests as set forth in the most recent Engineering Report includes the entire interest of the Borrower and its Subsidiaries in such Hydrocarbon Interests as of the date of such Engineering Report and are complete and accurate in all material respects as of the date of such Engineering Report; and there are no “back-in” or “reversionary” interests held by third parties which could materially reduce the interest of the Borrower and its Subsidiaries in such Hydrocarbon Interests except as taken into account in such Engineering Report. The ownership of such Hydrocarbon Interests held by the Borrower and its Subsidiaries shall not in any material respect obligate any of such Persons to bear the costs and expenses relating to the maintenance, development, and operations of such Hydrocarbon Interests in an amount in excess of the working interest of such Person in each such Hydrocarbon Interest set forth in the most recent Engineering Report.

     (c) All leases, instruments and agreements comprising the Borrower’s and its Subsidiaries’ Oil and Gas Properties necessary for the conduct of business of the Borrower and its Subsidiaries are valid and subsisting, in full force and effect and there exists no default or event of default or circumstance which with the giving of notice or lapse of time or both would give rise to a default under any such leases, instruments or agreements, in each case which would affect in any material respect the conduct of the business of the Borrower and its Subsidiaries. Neither the Borrower or any of its Subsidiaries nor, to the knowledge of the Borrower, any other party to any leases, instruments or agreements comprising its Oil and Gas Properties evaluated in the most recently delivered Engineering Report, has given or threatened to give notice of any default under or inquiry into any possible default under, or action to alter, terminate, rescind or procure a judicial reformation of, any such lease, instrument or agreement.

     (d) All of the Properties of the Borrower and its Subsidiaries that are reasonably necessary for the operation of their business are in good repair, working order and condition in all material respects and are maintained as is customary in the oil and gas industry. Since the date of the most recent financial statements delivered pursuant to Section 5.06(a), neither the business nor the Properties of the Credit Parties, taken as a whole, has been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, Permits, or concessions by a Governmental Authority, riot, activities of armed forces, or acts of God or of any public enemy.

     (e) Except as set forth on Schedule 4.10 or as otherwise disclosed in writing to the Agent:

          (i) In each case only with respect to any of the Borrower’s and its Subsidiaries’ Oil and Gas Properties that have been assigned a discounted present value equal to or in excess of $2,000,000 in any Engineering Report, (A) all rentals, royalties,

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overriding royalties, shut-in royalties and other payments due under or with respect to any such Hydrocarbon Interests evaluated in any Engineering Report have been properly and timely paid in the ordinary course of business and (B) all material expenses payable under the terms of the contracts and agreements comprising such Oil and Gas Properties (other than those described above in clause (A)) have been properly and timely paid in the ordinary course of business, except in each case (1) where such payments are being contested in good faith by appropriate proceedings and for which adequate reserves complying with GAAP have been made or (2) for payments the late payment of which could not reasonably be expected to cause a termination or forfeiture of any of the Borrower’s or its Subsidiaries’ rights under any such leases, instruments or agreements comprising any such Oil and Gas Properties or otherwise, individually or in the aggregate, cause a Material Adverse Change;

          (ii) All of the proceeds from the sale of Hydrocarbons produced from the Borrower’s and its Subsidiaries’ Hydrocarbon Interests are being properly and timely paid to the Borrower without suspense, other than any such proceeds the late payment or non-payment of which could not reasonably be expected to cause a Material Adverse Change or materially adversely affect the value of the Collateral taken as a whole; and

          (iii) No material amount of proceeds that has been received by any Credit Party from the sale of Hydrocarbons produced from the Oil and Gas Properties evaluated in the most recently delivered Engineering Report is subject to any claim for any refund or refund obligation, except as permitted under Section 4.14 or Section 6.13.

     Section 4.11 Security Instruments.

     (a) The provisions of each of the Second Pledge Agreements delivered to the Agent are effective to create in favor of the Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the Pledged Collateral (as defined therein) and proceeds thereof and upon the filing of UCC-1 Financing Statements with the secretary of state of each jurisdiction of formation for each of the grantors party thereto, the Second Pledge Agreements shall constitute an Acceptable Security Interest in all right, title and interest of the applicable Credit Party in such Pledged Collateral and the proceeds thereof.

     (b) On the Closing Date, the Equity Interests listed on Schedule I to each of the Second Pledge Agreements will constitute all the issued and outstanding Equity Interests in the Borrower, the General Partner, the Limited Partners, and the direct and indirect Subsidiaries of the Borrower; all such Equity Interests have been duly and validly issued and are fully paid and nonassessable; and the relevant pledgor of said shares is the record and beneficial owner of said shares.

     (c) The provisions of each Second Mortgage will be effective to grant to the Agent, for the ratable benefit of the Lenders, legal, valid and enforceable mortgage liens on all of the right, title and interest of the Borrower and its Subsidiaries in the mortgaged property described therein. Once each such Second Mortgage has been recorded in the appropriate recording office,

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such Second Mortgage will constitute an Acceptable Security Interest in such mortgaged property.

     (d) On the Closing Date, all governmental actions and all other filings, recordings, registrations, third party consents and other actions which are necessary to create and perfect the Liens provided for in the Subordinated Security Instruments will have been made, obtained and taken in all relevant jurisdictions (or are the subject of arrangements, satisfactory to the Agent, to be made, obtained or taken on or promptly after the Closing Date). No other filings or recordings are required in order to perfect the security interests created under any Subordinated Security Instruments.

     Section 4.12 No Burdensome Restrictions; No Defaults.

     (a) Neither the Borrower nor any of its Subsidiaries is a party to any indenture, loan, or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction or provision of applicable law or governmental regulation that could reasonably be expected to cause a Material Adverse Change. Neither the Borrower nor any of its Subsidiaries is in default nor has any event or circumstance occurred which, but for the expiration of any grace period or the giving of notice, or both, would constitute a default under (i) the Senior Credit Agreement or (ii) any other material contract, agreement, lease, or other instrument to which such Credit Party is a party which default could reasonably be expected to cause a Material Adverse Change.

     (b) No Default has occurred and is continuing.

     Section 4.13 Environmental Condition. Other than exceptions to any of the following that would not reasonably be expected to cause a Material Adverse Change or materially adversely affect the value of the Collateral taken as a whole:

     (a) Permits, Etc. With respect to its Oil and Gas Properties for which such Credit Party is the operator and with respect to its Oil and Gas Properties that are operated by operators other than the Borrower or a Subsidiary, to the best of its knowledge, in all material respects, each of the Credit Parties (i) has obtained all Environmental Permits necessary for the ownership and operation of any and all of their respective Properties for which such Credit Party is the operator and the conduct of their respective businesses; (ii) have at all times been and are in compliance with all terms and conditions of such Permits and with all other requirements of applicable Environmental Laws and other Legal Requirements; (iii) have not received notice of any violation or alleged violation of any Environmental Law or any such Permit; and (iv) are not subject to any actual or contingent Environmental Claim with respect to such Properties.

     (b) Certain Liabilities. None of the present or, to the best knowledge of any Credit Party, previously owned or operated Property of any of the Credit Parties, wherever located, (i) has been placed on or proposed to be placed on the National Priorities List, the Comprehensive Environmental Response Compensation Liability Information System list, or their state or local analogs, or have been otherwise investigated, designated, listed, or identified

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as a potential site for removal, remediation, cleanup, closure, restoration, reclamation, or other response activity under any Environmental Laws; or (ii) is subject to a Lien, other than a Permitted Lien, arising under or in connection with any Environmental Laws, that attaches to any revenues or to any Property owned or operated by the Borrower or any of its Subsidiaries, wherever located. To the best knowledge of any Credit Party, none of the present or previously owned Property of any of the Credit Parties, wherever located, has been the site of any Release of Hazardous Substances or Hazardous Wastes from present or past operations that has caused at the site or at any third party site any condition that has resulted in or could reasonably be expected to result in the need for Response.

     (c) Certain Actions. Without limiting the foregoing, (i) neither Borrower nor any Subsidiary of Borrower has filed any notice under any Law indicating that any such Person is responsible for the improper Release in the Environment, or the improper storage or disposal of any material amount of any Hazardous Wastes or that any Hazardous Wastes have been improperly released, or are improperly stored or disposed of, upon any Property of any such Person, and (ii) neither Borrower nor any of its Subsidiaries has any known contingent liability under any Environmental Laws.

     Section 4.14 Gas Contracts. Except as set forth in the most recent Engineering Report or in Schedule 4.14, on a net basis there are no material gas imbalances, material take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower and its Subsidiaries (or, in the case of Oil and Gas Properties operated by operators other than the Borrower or its Subsidiaries, to the Borrower’s knowledge after reasonable investigation) that would require the Borrower and its Subsidiaries to deliver 2.5% or more of the aggregate calendar quarter production from the Borrower’s and its Subsidiaries’ Hydrocarbons produced on a calendar quarter basis from their Hydrocarbon Interests at some future time without then or thereafter receiving full payment therefor.

     Section 4.15 Compliance with Laws. Except for any failure to comply with any of the foregoing which would not reasonably be expected to cause a Material Adverse Change, each of the Credit Parties has (a) complied with all applicable Legal Requirements of any Governmental Authority having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property and (b) obtained all Permits that are necessary for the ownership of any of its Properties or the conduct of their business. Other than exceptions to any of the following that would not reasonably be expected to cause a Material Adverse Change: (i) the prices being received by the Borrower and its Subsidiaries for the production of Hydrocarbons do not violate any material provision of any contract or agreement comprising the Oil and Gas Properties of the Borrower and its Subsidiaries or any Legal Requirement, (ii) where applicable, all of the wells located on the Borrower’s and its Subsidiaries’ Hydrocarbon Interests and production of Hydrocarbons therefrom have been properly classified under appropriate governmental regulations, (iii) all necessary regulatory filings have been properly made in connection with the drilling, completion and operation of the wells on or attributable to the Borrower’s and its Subsidiaries’ Hydrocarbon Interests and all other operations related thereto and (iv) all production and sales of the Borrower’s and its Subsidiaries’ Hydrocarbons produced or sold from

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the Borrower’s and its Subsidiaries’ Hydrocarbon Interests have been made in accordance with any applicable allowables (plus permitted tolerances) imposed by any Governmental Authorities.

     Section 4.16 Material Agreements. Schedule 4.16 sets forth a complete and correct list of all material agreements, leases, indentures, purchase agreements, obligations in respect of letters of credit, guarantees, joint venture agreements, and other instruments in effect or to be in effect as of the Closing Date providing for, evidencing, securing or otherwise relating to any material Debt of the Borrower or any of its Subsidiaries, and all obligations of the Borrower or any of its Subsidiaries to issuers of surety or appeal bonds (other than operator’s bonds, plugging and abandonment bonds, and similar surety obligations obtained in the ordinary course of business) issued for the account of the Borrower or any of its Subsidiaries, and such list correctly sets forth the names of the debtor or lessee and creditor or lessor with respect to the Debt or lease obligations outstanding or to be outstanding and the Property subject to any Lien securing such Debt or lease obligation.

     Section 4.17 Organizational Documents. The Partnership Agreement has not been terminated, is in full force and effect as of the Closing Date and no default has occurred and is continuing thereunder that could reasonably be expected to cause a Material Adverse Change.

     Section 4.18 Guarantors. All of the Borrower’s Subsidiaries are Guarantors under Article VIII.

     Section 4.19 Insurance. Each of the Borrower and its Subsidiaries carry insurance required under Section 5.02.

     Section 4.20 Use of Proceeds. The proceeds of the Advances will be used by the Borrower for the purposes described in Section 5.10. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). No proceeds of any Advance will be used to purchase or carry any margin stock in violation of Regulation T, U or X.

     Section 4.21 Investment Company Act. Neither Brigham Exploration nor any of its Subsidiaries is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

     Section 4.22 Public Utility Holding Company Act. Neither Brigham Exploration nor any of its Subsidiaries is a “holding company,” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” or a “public utility” within the meaning of the Public Utility Holding Company Act of 1935, as amended.

     Section 4.23 Transmitting Utility. Neither Brigham Exploration nor any of its Subsidiaries is a “transmitting utility” or an “interstate gas pipeline company” or a “public service corporation” within the meaning of the laws currently in effect for the States of Texas and/or Oklahoma.

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ARTICLE V

AFFIRMATIVE COVENANTS

     So long as any Subordinated Note or any amount under any Subordinated Loan Document shall remain unpaid or any Lender shall have any Commitment hereunder, each of the Credit Parties agrees to comply with the following covenants.

     Section 5.01 Compliance with Laws, Etc. The Borrower shall comply, and cause each of its Subsidiaries to comply, in all material respects with all Legal Requirements; provided that this Section 5.01 shall not prevent the Borrower or any of its Subsidiaries from, in good faith and with reasonable diligence, contesting the validity or application of any such laws or regulations by appropriate legal proceedings. Without limitation of the foregoing, the Borrower shall use commercially reasonable efforts to obtain, and shall cause each of its Subsidiaries to use commercially reasonable efforts to obtain, as soon as practicable, all consents or approvals required from any states of the United States (or other Governmental Authorities) necessary to grant the Agent an Acceptable Security Interest in the Borrower’s and its Subsidiaries’ Oil and Gas Properties.

     Section 5.02 Maintenance of Insurance.

     (a) The Borrower shall, and shall cause each of its Subsidiaries to, maintain with financially sound and reputable insurance companies insurance of such types, in such amounts and against such risks as is customary to be maintained by companies engaged in the same or a similar business in the same general area; and furnish to the Agent, upon written request, full information as to the insurance carried. In addition, the Borrower shall, and shall cause each of its Subsidiaries to, comply with all requirements regarding insurance contained in the Subordinated Security Instruments.

     (b) All certified copies of policies or certificates thereof, and endorsements and renewals thereof shall be delivered to and retained by the Agent. All policies of insurance shall name the Agent as an additional insured. All policies or certificates of insurance shall set forth the coverage, the limits of liability, the name of the carrier, the policy number, and the period of coverage. In addition, all policies of insurance required under the terms hereof shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act of negligence of the Borrower, or a Subsidiary or any party holding under the Borrower or a Subsidiary which might otherwise result in a forfeiture of the insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or deductions against the Borrower and its Subsidiaries. All such policies shall contain a provision that notwithstanding any contrary agreements between the Borrower, its Subsidiaries, and the applicable insurance company, such policies will not be canceled, allowed to lapse without renewal, surrendered or amended (which provision shall include any reduction in the scope or limits of coverage) without at least 10 days’ prior written notice to the Agent in the event of the Borrower’s failure to pay any premiums and in all other cases, 30 days’ prior written notice to the Agent. So long as no Default or Event of Default shall have occurred and is

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continuing, Borrower shall be entitled to retain the proceeds of any insurance policy described above.

     Section 5.03 Preservation of Corporate Existence, Etc. Each of the Credit Parties shall preserve and maintain its corporate, limited partnership or limited liability company, as applicable, existence, and all of its material rights, franchises, and privileges in the jurisdiction of its formation, and qualify and remain qualified as a foreign entity in each jurisdiction in which qualification is necessary or desirable in view of its business and operations or the ownership of its Properties to the extent the failure to qualify could reasonably be expected to cause a Material Adverse Change.

     Section 5.04 Payment of Taxes, Etc. The Borrower shall, and shall cause each of its Subsidiaries to, pay and discharge, before the same shall become delinquent, (a) all taxes, assessments, and governmental charges or levies imposed upon it or upon its income or profits or Property prior to the date on which penalties attach thereto and (b) all lawful claims that are material in amount which, if unpaid, could by law become a Lien upon its Property; provided that neither the Borrower nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge, levy, or claim which is being contested in good faith and by appropriate proceedings, and with respect to which reserves in conformity with GAAP have been provided.

     Section 5.05 Inspection; Books and Records. Upon reasonable notice, each Credit Party shall permit the Agent or any of its agents or representatives, during normal business hours, to (a) examine and make copies of and abstracts from the records and books of account of, and visit and inspect at their reasonable discretion the Properties of, such Credit Party, and (b) discuss the affairs, finances and accounts of such Credit Party with any of their respective officers or directors, all to the extent reasonably requested by the Agent. Each Credit Party shall keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Legal Requirements shall be made of all dealings and transactions in relation to its business and activities.

     Section 5.06 Reporting Requirements. The Borrower shall furnish, or shall cause the applicable Credit Party to furnish, to the Agent and each Lender:

     (a) Annual Financials of Brigham Exploration. As soon as available, but in any event within 90 days after the end of each fiscal year of Brigham Exploration or sooner if required by the SEC, the audited consolidated statements of income, stockholders’ equity, changes in financial position and cash flow of Brigham Exploration and its consolidated Subsidiaries for such fiscal year, and the related consolidated and unaudited consolidating balance sheets of Brigham Exploration and its consolidated Subsidiaries as at the end of such fiscal year, and setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, together with a certification by its Chief Executive Officer and its Chief Financial Officer in accordance with the Sarbanes-Oxley Act of 2002 and accompanied by the related opinion of independent public accountants of recognized national standing reasonably acceptable to the Agent which opinion shall state that such financial statements fairly present the consolidated financial position and results of operations of Brigham Exploration and its consolidated

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Subsidiaries as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP except for such changes in such principles with which the independent public accountants shall have concurred and such opinion shall not contain a “going concern” or like qualification or exception;

     (b) Quarterly Financials of Brigham Exploration. As soon as available, but in any event not later than 45 days after the end of each of the first three quarterly fiscal periods of each fiscal year of Brigham Exploration and its consolidated Subsidiaries (or sooner if required by the SEC), consolidated statements of income, stockholders’ equity, changes in financial position and cash flow of Brigham Exploration and its consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and consolidating balance sheets of Brigham Exploration and its consolidated Subsidiaries as at the end of such period, and setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, together with a certification by its Chief Executive Officer and its Chief Financial Officer in accordance with the Sarbanes-Oxley Act of 2002 and accompanied by the certificate of a Responsible Officer of Brigham Exploration, which certificate shall state that such financial statements fairly present the consolidated financial position and results of operations of Brigham Exploration and its consolidated Subsidiaries in accordance with GAAP, as at the end of, and for such period (subject to normal year-end audit adjustments);

     (c) Compliance Certificates. Concurrently with the delivery of each of the financial statements referred to in Section 5.06(a) and Section 5.06(b), a Compliance Certificate executed by a Responsible Officer of Brigham Exploration;

     (d) Insurance Certificates. Concurrently with the annual renewal thereof, insurance certificates naming the Agent additional insured and evidencing insurance which meets the requirements of this Agreement and the Subordinated Security Instruments;

     (e) Notice of Defaults. As soon as possible after the occurrence of a Default known to any Responsible Officer of any Credit Party which is continuing on the date of such statement, a statement of a Responsible Officer setting forth the details of such Default and the actions which the Credit Parties have taken and propose to take with respect thereto;

     (f) Material Changes. Prompt written notice of any condition or event of which any Responsible Officer of any Credit Party has knowledge, which condition or event has resulted in or could reasonably be expected to cause a Material Adverse Change;

     (g) Annual Capital Expenditures Budget. As soon as available and in any event prior to January 31, a one- year capital expenditure projection for Brigham Exploration and its Subsidiaries in form and substance acceptable to the Agent for the following fiscal year;

     (h) Litigation. Prompt written notice of (i) any claims, legal or arbitration proceedings, proceedings before any Governmental Authority, or disputes, or to the knowledge of the Borrower threatened, or affecting any Credit Party which, if adversely determined, could

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reasonably be expected to cause a Material Adverse Change, (ii) any material litigation or proceeding against the Borrower or any of its Subsidiaries in which the amount involved is not covered in full by insurance (subject to normal and customary deductibles), or in which injunctive or similar relief is sought or (iii) any claim, judgment, Lien or other encumbrance (other than a Permitted Lien) affecting any Property of the Borrower or any of its Subsidiaries if the value of such claim, judgment, Lien, or other encumbrance affecting such Property shall exceed $2,000,000 (excluding liabilities to the extent covered by insurance unless the insurer has disputed that such insurance covers such liabilities);

     (i) Environmental. Prompt written notice of any threatened action, investigation or inquiry by any Governmental Authority of which any Responsible Officer of any Credit Party has knowledge in connection with any Environmental Laws with respect to the Property of the Borrower or any of its Subsidiaries, excluding routine testing, compliance and corrective action;

     (j) Other Accounting Reports. Promptly upon receipt thereof, a copy of each other report or letter (excluding routine correspondence) submitted to any Credit Party by independent accountants in connection with any annual, interim or special audit made by them of the books of any Credit Party, and a copy of any response by any Credit Party to such letter or report;

     (k) Securities Law Filings and other Public Information. Promptly, upon its becoming available, each financial statement, notice, proxy material, reports and other information which any Credit Party sends to the holders of its respective public securities generally, files with or received from the SEC (excluding correspondence and other information received from the SEC concerning draft registration statements), or otherwise makes available to the public or the financial community generally;

     (l) Notices Under Other Loan Agreements. Promptly after the furnishing thereof, copies of any statement, report or notice furnished to any Person pursuant to the terms of any indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 5.06;

     (m) ERISA Information and Compliance. Promptly furnish, and will cause any ERISA Affiliate to promptly furnish, (i) if requested by the Agent promptly after the filing thereof with the United States Secretary of Labor, the Interest Revenue Service or the PBGC, copies of each annual and other report with respect to each Plan or any trust created thereunder, (ii) immediately upon becoming aware of the occurrence of any ERISA Event or of any “prohibited transaction,” as described in Section 406 of ERISA or in Section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by a Responsible Officer of the General Partner or such ERISA Affiliate specifying the nature thereof, what action the borrower or the ERISA Affiliate is taking or proposes to take with respect thereto, and when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, and (iii) immediately upon receipt thereof, copies of any notice of the PBGC’s intention to terminate or to have a trustee appointed to administer any Plan; and

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     (n) Acquisition Information. Concurrently with the delivery of each of the financial statements referred to in Section 5.06(a) and Section 5.06(b), a list of any Properties consisting of Oil and Gas Properties purchased by the Borrower or any of its Subsidiaries during the previous fiscal quarter other than in the ordinary course of business for a price equal to or greater than $5,000,000 for any single transaction or group of related transactions or $10,000,000 in the aggregate during the previous twelve months (unless previously disclosed), together with such other information regarding such Oil and Gas Properties as Agent or any Lender may reasonably request; and

     (o) Other Information. Subject to any applicable restrictions on disclosure, such other information respecting the business or Properties, or the condition or operations, financial or otherwise, of the Credit Parties (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA), as any Lender through the Agent may from time to time reasonably request. The Agent agrees to provide the Lenders with copies of any material notices and information delivered solely to the Agent pursuant to the terms of this Agreement.

Documents required to be delivered pursuant to Section 5.06(a), (b) or (k) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which Brigham Exploration posts such documents, or provides a link thereto on Brigham Exploration’s website on the Internet; or (ii) on which such documents are posted on Brigham Exploration’s behalf on an Internet or intranet website (such as “Edgar”), if any, to which each Lender and the Agent have access (whether a commercial third-party website or whether sponsored by the Agent); provided that: (A) the Borrower shall deliver paper copies of such documents to the Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Agent or such Lender and (B) the Borrower shall notify the Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 5.06(c) to the Agent. Except for such Compliance Certificates, the Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

     Section 5.07 Maintenance of Property. The Borrower shall, and shall cause each of its Subsidiaries to, (a) develop and operate its Oil and Gas Properties in a good and workmanlike manner as is customary in the oil and gas industry, and observe and comply in all material respects with all of the terms and provisions, express or implied, of all oil and gas leases relating to such Oil and Gas Properties so long as the oil and gas leases are capable of producing Hydrocarbons in quantities and at prices providing for continued efficient and profitable operation of business; (b) comply in all material respects with all contracts and agreements

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applicable to or relating to its Oil and Gas Properties or the production and sale of Hydrocarbons and accompanying elements therefrom; (c) maintain, preserve, and keep all operating equipment used with respect to its Oil and Gas Properties in proper repair, working order and condition (ordinary wear and tear excepted) in a good and workmanlike manner as is customary in the oil and gas industry, and (d) with respect to its Oil and Gas Properties that are operated by operators other than the Borrower or a Subsidiary, (i) seek to enforce the operators’ contractual obligations to maintain, develop, and operate such Properties subject to the applicable operating agreements and (ii) cause or make reasonable and customary efforts to cause such Oil and Gas Properties to be operated in a good and workmanlike manner as is customary in the oil and gas industry.

     Section 5.08 Environmental Laws. To the extent that a reasonably prudent owner or operator would do so under the same or similar circumstances, the Borrower shall, and shall cause each of its Subsidiaries to establish and implement such procedures as may be reasonably necessary to periodically determine and assure that any failure of the following does not cause a Material Adverse Change: (i) all Property of the Borrower and its Subsidiaries and the operations conducted thereon and other activities of the Borrower and the Subsidiaries are in compliance with and do not violate the requirements of any Environmental Laws; (ii) no Hazardous Substances or Hazardous Wastes are disposed of or otherwise released on or to any Property owned by any such party except in compliance with Environmental Laws, (iii) no Hazardous Substance will be released on or to any such Property in a quantity equal to or exceeding that quantity that requires reporting under CERCLA, and (iv) no Hazardous Substances or Hazardous Wastes is released on or to any such Property so as to pose an imminent and substantial endangerment to public health or welfare or the environment. With respect to Oil and Gas Properties owned by the Borrower and/or any of its Subsidiaries, but with respect to which neither the Borrower nor a Subsidiary is the operator, the Borrower shall use commercially reasonable efforts to cause the operator of such Oil and Gas Properties to establish and implement procedures and take any actions required of the Borrower under this Section 5.08.

     Section 5.09 Payment of Trade Payables. Each of the Credit Parties shall pay, and shall cause each of its Subsidiaries to pay, all of their customary trade payables incurred in the ordinary course of business now or hereafter incurred within 90 days of the date the invoice is received by such Credit Party, unless subject to legal offset or unless being contested in good faith by appropriate proceedings and reserves adequate under GAAP shall have been established therefor.

     Section 5.10 Use of Proceeds. The Borrower shall use the proceeds of the Advances (a) to refinance Debt under the Existing Subordinated Credit Agreement and (b) for other general partnership purposes.

     Section 5.11 Additional Collateral. The Borrower will grant, and will cause each of its Subsidiaries to grant, to the Agent an Acceptable Security Interest in such Oil and Gas Properties of the Borrower and its Subsidiaries, constituting 80% of the discounted net present value of the Proven Reserves of the Borrower and its Subsidiaries as determined by the Agent.

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     Section 5.12 New Subsidiaries. Within 10 days after (a) the date of the creation of any new Subsidiary of Brigham Exploration or the Borrower, or (b) the purchase by Brigham Exploration, the Borrower, or any of its other Subsidiaries of the Equity Interests of any Person, which purchase results in such Person becoming a Subsidiary of Brigham Exploration or of the Borrower permitted by this Agreement, Brigham Exploration or the Borrower, as applicable, shall, in each case, cause (i) such Person to execute and deliver to the Agent (with sufficient originals for each applicable Lender) a joinder agreement to this Agreement in form and substance acceptable to the Agent, a Second Pledge Agreement (if such new Subsidiary owns one or more Subsidiaries), one or more Second Mortgages (if such new Subsidiary owns Oil and Gas Properties and if such Second Mortgages are otherwise required under Section 5.11), and such other Subordinated Security Instruments as the Agent or any Lender may reasonably request (to the extent such other Subordinated Security Instruments are required to be delivered under the terms of this Agreement), in each case to secure the Subordinated Obligations together with evidence of corporate authority to enter into and such legal opinions in relation to such joinder agreement, Second Pledge Agreement, Second Mortgages and other Subordinated Security Instruments as the Agent may reasonably request, and (ii) the stockholder of such new Subsidiary to execute a Second Pledge Agreement pledging its interests in the Equity Interests of such new Subsidiary to secure the Subordinated Obligations and such evidence of corporate authority to enter into and such legal opinions in relation to such Second Pledge Agreement as the Agent may reasonably request.

     Section 5.13 Title. As of the Closing Date, the Agent shall have received title opinions, title reports or other title due diligence reflecting that the Borrower has title reasonably satisfactory to the Agent in such Oil and Gas Properties of the Borrower and its Subsidiaries constituting 80% of the Borrower’s and its Subsidiaries’ proved, developed, producing Hydrocarbon reserves and proved, developed, nonproducing Hydrocarbon reserves (each as determined in conformity with the guidelines in effect from time to time as promulgated by the Society of Petroleum Engineers or its successor association) as determined by the Agent. With respect to Oil and Gas Properties acquired after the Closing Date or not previously included in the Borrowing Base, and to the extent necessary to allow the Agent to achieve the percentage described in the preceding sentence, the Borrower shall from time to time upon the reasonable request of the Agent, take such actions and execute and deliver such documents and instruments as the Agent shall require to ensure that the Agent shall, at all times, have received satisfactory title opinions (including, if requested, supplemental or new title opinions addressed to it), title reports, or other title due diligence, which title diligence shall be in form and substance reasonably acceptable to the Agent and shall include information regarding the before payout and after payout ownership interests held by the Borrower and its Subsidiaries, for all wells located on the Oil and Gas Properties covered thereby as to the ownership of Oil and Gas Properties of the Borrower and its Subsidiaries.

     Section 5.14 Further Assurances. The Borrower shall, and shall cause each of its Subsidiaries to, cure promptly any defects in the execution and delivery of the Subordinated Loan Documents, including, without limitation, the Subordinated Security Instruments and this Agreement. The Borrower hereby authorizes the Agent to file any financing statements without

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the signature of the Borrower to the extent permitted by applicable law in order to perfect or maintain the perfection of any security interest granted under any of the Subordinated Loan Documents. The Borrower at its expense will, and will cause each of its Subsidiaries to, promptly execute and deliver to the Agent upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Borrower or any Subsidiary of the Borrower, as the case may be, in the Subordinated Security Instruments and this Agreement, or to further evidence and more fully describe the collateral intended as security for the Subordinated Notes, or to correct any omissions in the Subordinated Loan Documents, or to state more fully the security obligations set out herein or in any of the Subordinated Loan Documents, or to perfect, protect or preserve any Liens created pursuant to any of the Subordinated Loan Documents, or to make any recordings, to file any notices or obtain any consents, all as may be necessary or appropriate in connection therewith or to enable the Agent to exercise and enforce its rights and remedies with respect to any Collateral.

     Section 5.15 Delivery of Engineering Reports.

     (a) The Borrower shall deliver to the Agent and each of the Lenders on or before each February 15, beginning February 15, 2005, an Independent Engineering Report dated effective as of the immediately preceding December 31, together with such other reports, data and supplemental information as may be reasonably requested by the Agent with respect to the Oil and Gas Properties included or to be included in the calculation of Total NPV hereunder.

     (b) The Borrower shall deliver to the Agent and each Lender on or before each August 15, beginning August 15, 2005, an Internal Engineering Report dated effective as of the immediately preceding June 30, together with such other reports, data and supplemental information as may be reasonably requested by the Agent with respect to the Oil and Gas Properties included or to be included in the calculation of Total NPV hereunder.

     (c) If any Interim Redetermination is ever requested, the Borrower shall deliver to the Agent and each Lender on or before the 30^th day after such request, an Internal Engineering Report dated effective as of the calendar month most recently ended prior to the delivery of such report, and such supporting information with respect thereto as may be reasonably requested by the Agent with respect to the Oil and Gas Properties included or to be included in the calculation of Total NPV hereunder.

     (d) With the delivery of each Engineering Report, the Borrower shall furnish to the Agent and the Banks a certificate from a Responsible Officer certifying that: (i) the information contained in the Engineering Report and any other information delivered in connection therewith is true and correct in all material respects, (ii) the Borrower and its Subsidiaries, as applicable, own the Oil and Gas Properties specified therein free and clear of any Liens (except Permitted Liens), (iii) none of the Borrower’s or its Subsidiaries’ Oil and Gas Properties have been sold since the date of the most recently delivered Engineering Report except as set forth on an exhibit to the certificate, which certificate shall list all of such Oil and Gas Properties sold and in such detail as reasonably required by the Agent, and (iv) on and as of the date of such Engineering Report each Oil and Gas Property described as “proved developed” therein was developed for oil

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and gas, and the wells pertaining to such Oil and Gas Properties that are described therein as producing wells (“Wells”) were each producing oil and gas in paying quantities, except for Wells that were utilized as water or gas injection wells or as water disposal wells.

ARTICLE VI

NEGATIVE COVENANTS

     So long as any Subordinated Note or any amount under any Subordinated Loan Document shall remain unpaid or any Lender shall have any Commitment, each of the Credit Parties agrees to comply with the following covenants.

     Section 6.01 Liens, Etc. None of the Credit Parties shall create, assume, incur, or suffer to exist, or permit any of their Subsidiaries to create, assume, incur, or suffer to exist, any Lien on or in respect of any of its Property whether now owned or hereafter acquired, or assign any right to receive income, except that the Credit Parties may create, incur, assume, or suffer to exist the following (collectively, the “Permitted Liens”):

     (a) Liens securing the Subordinated Obligations;

     (b) Liens securing the Senior Obligations;

     (c) Excepted Liens;

     (d) Liens securing leases allowed under Section 6.02(f) but only on the Property under lease;

     (e) Liens disclosed on Schedule 6.01; and

     (f) any encumbrances permitted under the terms of any Second Mortgage.

     Section 6.02 Debts, Guaranties, and Other Obligations. None of the Credit Parties shall, and none of the Credit Parties shall permit any of their Subsidiaries to, create, assume, suffer to exist, or in any manner become or be liable in respect of, any Debt except:

     (a) the Senior Obligations;

     (b) the Subordinated Obligations;

     (c) Debt existing on the Closing Date that is reflected in the Financial Statements or is disclosed on Schedule 6.02, and any renewals or extensions (but not increases) thereof;

     (d) Accounts payable for the deferred purchase price of Property or services (other than customary trade payables incurred in the ordinary course of business) from time to time incurred in the ordinary course of business which, if greater than 90 days past the date the

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invoice is received by such Credit Party, are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been established;

     (e) Debt owing by a Credit Party to any other Credit Party which is subordinated to the Subordinated Obligations pursuant to subordination provisions in form and substance acceptable to the Agent;

     (f) Debt of the Borrower under Capital Leases not to exceed $5,000,000 at any one time outstanding;

     (g) Debt of the Borrower under Hydrocarbon Hedge Agreements or Interest Hedge Agreements that is made (i) with a Person that is, at the time such Hydrocarbon Hedge Agreement or Interest Hedge Agreement is made, either a Lender, a Senior Lender or an Affiliate of a Lender or a Senior Lender, or (ii) with another counterparty rated at least A- or better by S&P or A3 or better by Moody’s, provided that the aggregate notional amounts under all such Hydrocarbon Hedge Agreements (other than Hydrocarbon Hedge Agreement that are floors) do not exceed 80% of the Borrower’s proved, developed, producing Hydrocarbon reserves (as determined in conformity with the guidelines in effect from time to time as promulgated by the Society of Petroleum Engineers or its successor association) to be produced during the term of such Hydrocarbon Hedge Agreements and that such Hydrocarbon Hedge Agreements are entered into as a part of its normal business operations as risk management strategy and/or hedge against changes resulting from market conditions related to the Borrower’s and its Subsidiaries’ operations;

     (h) Debt of the Borrower and its Subsidiaries (i) associated with bonds or surety obligations required by Legal Requirements in connection with the operation of the Oil and Gas Properties and (ii) associated with the financing of insurance premiums;

     (i) Debt of the Borrower described in Schedule 6.02(i) and such other Debt of the Borrower related to the acquisition of software and licensing rights related thereto that does not exceed $500,000 at any one time outstanding;

     (j) Debt of the Borrower with respect to payments in kind of accrued dividends on Preferred Stock of the Borrower held by the Preferred Shareholders; and

     (k) Debt that is not described in subsections (a) through (j) above and that together with all Debt of the Borrower allowed under subsection (i) above does not exceed $5,000,000 at any one time outstanding.

     Section 6.03 Agreements Restricting Liens and Distributions. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, create, incur, assume or permit to exist any contract, agreement or understanding (other than the Senior Loan Documents and the Subordinated Loan Documents) that in any way prohibits or restricts (a) the granting, conveying, creation or imposition of any Lien on any of its Property, whether now owned or hereafter acquired, to secure the Subordinated Obligations, except for customary

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limitations and restrictions contained in, and limited to, specific leases, licenses, conveyances, partnership agreements and co-owners’ agreements, and similar conveyances and agreements or (b) any Subsidiary from paying dividends or making any other distribution to the Borrower, or otherwise transferring assets to the Borrower, or which requires the consent of or notice to other Persons in connection therewith.

     Section 6.04 Merger or Consolidation. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to (a) merge or consolidate with or into any other Person, or (b) sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property to any other Person, except that (i) if either Brigham Exploration or the Borrower is a party to such merger or consolidation, then Brigham Exploration or the Borrower, as the case may be, shall be the continuing Person, (ii) a Subsidiary of the Borrower may merge with or into the Borrower or a wholly owned Subsidiary of the Borrower (provided that if either of such Subsidiaries is a Guarantor, the surviving entity shall be a Guarantor), (iii) a Subsidiary of the Borrower may transfer all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another wholly owned Subsidiary of the Borrower (provided that if the transferor in such a transaction is a Guarantor, then the transferee must either be the Borrower or a Guarantor), and (iv) a Subsidiary of Brigham Exploration (other than the Borrower and its Subsidiaries) may merge with or into Brigham Exploration or a wholly owned Subsidiary of Brigham Exploration (provided that if either of such Subsidiaries is a Guarantor, the surviving entity shall be a Guarantor), provided in each case that (A) no Event of Default exists or no Default would be caused thereby, and (B) if any Collateral is transferred pursuant to this Section 6.04, the Borrower shall provide the Agent with ten Business Days’ written notice prior to such transfer, and the Borrower or such Guarantor, as the case may be, owning the Collateral after such transfer shall ratify and confirm the Lien on such Collateral and shall take all action reasonably requested by the Agent in respect of the continued priority and perfection of the Lien over such Collateral.

     Section 6.05 Sales of Assets. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of its Subsidiaries to, discount or sell (with or without recourse) any of their notes receivable or accounts receivable, except in the ordinary course of business. The Borrower shall not, nor shall it permit any of its Subsidiaries to sell, assign, farm-out, convey or otherwise transfer (collectively, a “Disposition”) any Hydrocarbon Interests except for (a) Dispositions of Hydrocarbons in the ordinary course of business, (b) Dispositions of equipment that is no longer necessary for the business of such Person or contemporaneously replaced by equipment of at least comparable value and use, (c) Dispositions permitted under Section 6.04, (d) Dispositions of Properties by a Credit Party to another Credit Party, (e) Dispositions of Oil and Gas Properties made in arm’s length transactions for fair market value, not exceeding $7,500,000 in any period of twelve consecutive calendar months in the aggregate or (f) Dispositions (other than farm-outs) of Non-Proven Reserves made in arm’s length transactions for fair market value, not exceeding $7,500,000 in any period of twelve consecutive calendar months in the aggregate, provided that with respect to subsections (c), (d), (e) and (f) of this Section 6.05, no Default or Event of Default has occurred and is continuing or would result from such sale.

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     Section 6.06 Restricted Payments. Neither Brigham Exploration nor the Borrower shall make any Restricted Payments except as permitted under Section 6.07(a)(iii).

     Section 6.07 Investments and Acquisitions.

     (a) None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, make or permit to exist any Investment, except:

          (i) Investments, loans or advances reflected in the Financial Statements or that are disclosed to the Lenders in Schedule 6.07;

          (ii) Investments in Cash Equivalents; and

          (iii) Investments by any Credit Party in the Borrower or a Person that is or will become within 10 Business Days after the making of such Investment a Guarantor in accordance with Section 5.12 or that will, within ten (10) Business Days after the making of any such Investment merge or consolidate into such Credit Party, provided that the Borrower may only make Investments to Brigham Exploration or any Partner to pay federal or state taxes owing by any of them, payroll and payroll related taxes and other reasonable general and administrative expenses, or consisting of forgiveness of indebtedness;

     (b) None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, purchase any Oil and Gas Properties not evaluated in the most recently delivered Engineering Report in an aggregate amount in excess of $10,000,000 in any period of twelve consecutive calendar months. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, purchase any Properties (other than Oil and Gas Properties) other than in the ordinary course of business in an aggregate amount in excess of $10,000,000 in any period of twelve consecutive calendar months.

     Section 6.08 Affiliate Transactions. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of transactions (including, but not limited to, the purchase, sale, lease or exchange of Property, the making of any investment, the giving of any guaranty, the assumption of any obligation or the rendering of any service) with any of their Affiliates (other than any transaction between the Borrower, any Credit Party, or any Subsidiary of the Borrower) unless such transaction or series of transactions is not in violation of this Agreement and upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm’s length transaction with a Person that is not such an Affiliate.

     Section 6.09 Compliance with ERISA. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, directly or indirectly, (a) engage in, or permit any ERISA Affiliate to engage in, any transaction in connection with which any Credit Party or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to Section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code in

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excess of $500,000; (b) terminate, or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result reasonably be expected to result in any liability to any Credit Party or any ERISA Affiliate to the PBGC in excess of $500,000; (c) fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, any Credit Party or any ERISA Affiliate is required to pay as contributions thereto; (d) permit to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency in excess of $500,000 within the meaning of Section 302 of ERISA or Section 412 of the Code, whether or not waived, with respect to any Plan; (e) permit, or allow any ERISA Affiliate to permit, the actuarial present value of the benefit liabilities (as “actuarial present value of the benefit liabilities” shall have the meaning specified in Section 4041 of ERISA) under any Plan maintained by any Credit Party or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities by an amount in excess of $500,000; (f) contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan; (g) acquire, or permit any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to any Credit Party or any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (i) any Multiemployer Plan, or (ii) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities; (h) incur, or permit any ERISA Affiliate to incur, a liability to or on account of a Plan under Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA which in the aggregate for all such liabilities exceeds $500,000; (i) contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as defined in Section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without any material liability; or (j) amend or permit any ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that any Credit Party or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the Code.

     Section 6.10 Sales and Leasebacks. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, enter into any arrangement, directly or indirectly, with any Person whereby such Credit Party shall sell or transfer any of its Property, whether now owned or hereafter acquired, and whereby such Credit Party shall then or thereafter rent or lease as lessee such Property or any part thereof or other Property which such Credit Party intends to use for substantially the same purpose or purposes as the Property sold or transferred, except for sales and leasebacks of compression, processing, gathering or other similar equipment in an aggregate amount not to exceed $2,000,000 in any period of twelve

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consecutive calendar months provided that no Default or Event of Default has occurred and is continuing or would result from such sale and leaseback.

     Section 6.11 Change of Business. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, allow any material change to be made in the character of its business as an independent oil and gas exploration and production company

     Section 6.12 Use of Proceeds. The Borrower will not permit the proceeds of any Advance to be used for any purpose other than those permitted by Section 5.10. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or shall take, any action which might cause any of the Subordinated Loan Documents to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.

     Section 6.13 Gas Imbalances, Take-or-Pay or Other Prepayments. Except as set forth in Schedule 4.14, the Borrower shall not allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower and its Subsidiaries that would require the Borrower and its Subsidiaries to deliver 2.5% or more of the aggregate calendar quarter production from the Borrower’s and its Subsidiaries’ Hydrocarbons produced on a calendar quarter basis from such Hydrocarbon Interests at some future time without then or thereafter receiving full payment therefor.

     Section 6.14 Additional Subsidiaries. Except as otherwise permitted by Section 6.07, none of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, create any additional Subsidiaries or make any additional Investment in a Subsidiary unless such Credit Party has complied with Section 5.12. Except as otherwise permitted by Section 6.07(a)(iii), no assets may be transferred to a Subsidiary that is not a Guarantor.

     Section 6.15 Limitation on Leases. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, create, incur, assume or suffer to exist any obligation for the payment of rent or hire of Property of any kind whatsoever (real or personal including Capital Leases but excluding leases of Hydrocarbon Interests and the equipment used thereon), under leases or lease agreements that would cause the aggregate amount of all payments made by the Credit Parties and their Subsidiaries pursuant to all such leases or lease agreements to exceed $5,000,000 in any period of twelve consecutive calendar months during the life of such leases.

     Section 6.16 Equity Interests of Partners. Brigham Exploration will not permit any of Equity Interests of any of the Partners to be owned or controlled by any Person other than Brigham Exploration or another Partner, except pursuant to a transaction otherwise permitted under Section 6.04.

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     Section 6.17 Change of Name; Fiscal Year; Accounting Method. None of the Credit Parties shall, nor shall any of the Credit Parties permit any of their Subsidiaries to, change its name, fiscal year or method of accounting except as required by GAAP; provided that any Credit Party may change its name if such Credit Party has given the Agent at least 30 days’ (unless otherwise consented to by the Agent) prior written notice of such name change and taken such action as the Agent deems reasonably necessary to continue the perfection of the Liens securing payment of the Subordinated Obligations.

     Section 6.18 Current Ratio. Brigham Exploration shall not permit the ratio of (a) its consolidated current assets of Brigham Exploration and its consolidated Subsidiaries to (b) their consolidated current liabilities to be less than 1.00 to 1.00 at any time. For purposes of this Agreement, “consolidated current assets” and “consolidated current liabilities” shall be determined in accordance with GAAP, except that (a) consolidated current assets and consolidated current liabilities will be calculated without including any amounts resulting from the application of FASB Statements 133 or 143, (b) the Unused Commitment Amount (as defined in the Senior Credit Agreement) shall be treated as a consolidated current asset, and (c) the consolidated current liabilities will exclude current maturities of long-term debt.

     Section 6.19 Interest Coverage Ratio. Brigham Exploration shall not permit the Interest Coverage Ratio as of the end of any fiscal quarter (calculated quarterly at the end of each fiscal quarter) to be less than 3.0 to 1.0 for the twelve-month period ending at the end of each such fiscal quarter.

     Section 6.20 Restrictions on Limited Partners. Brigham Exploration shall not permit either of the Limited Partners to hold any Properties other than the limited partner interests in the Borrower.

     Section 6.21 Advance Payment Contracts. None of the Credit Parties will enter into or be a party to any Advance Payment Contract with respect to any Properties.

     Section 6.22 Calculated Total NPV to Total Debt Ratio.

     (a) The Borrower will not at any time on or after December 31, 2004 permit the ratio of Calculated Total NPV to Total Debt to be less than 1.5 to 1.0.

     (b) Upon (i) any change to Calculated Total NPV pursuant to a Scheduled Redetermination or an Interim Redetermination or (ii) the incurrence of any Debt (other than redeemable preferred stock that is permitted to be issued pursuant to Section 6.02(c)) by the Borrower or any of its consolidated Subsidiaries, the Borrower will promptly, but in any event within fifteen (15) days after any such event (or with respect to a Scheduled Redetermination or an Interim Redetermination, if later, fifteen (15) days after Borrower’s receipt of Agent’s notification of the Calculated Total NPV under Section 6.22(c)), deliver a certificate of the chief financial officer of the General Partner setting forth the Total Debt of the Borrower and the Calculated Total NPV, both prior to and after giving effect to such event, and demonstrating compliance with Section 6.22(a), provided that no such certificate need be delivered in

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connection with any borrowing under the Senior Credit Agreement if immediately following such borrowing the Borrower remains in compliance with the covenant set out in Section 6.22(a).

     (c) Calculated Total NPV shall be calculated semi-annually in accordance with this Section 6.22, promptly following the delivery of each Engineering Report pursuant to Section 5.15(a) and (b), but in any event not later than April 30th of each year in the case of Engineering Reports delivered pursuant to Section 5.15(a) and October 31st of each year in the case of Engineering Reports delivered pursuant to Section 5.15(b), commencing April 30, 2005 (a “Scheduled Redetermination”). In addition, the Borrower may, by notifying the Agent thereof, and the Agent may, at the direction of the Majority Lenders, by notifying the Borrower thereof, one time during any 12-month period, each elect to cause the Calculated Total NPV to be calculated between Scheduled Redeterminations (an “Interim Redetermination”) in accordance with this Section 6.22. Promptly after receiving each Engineering Report delivered in connection with a Scheduled Redetermination or Interim Redetermination, and using the calculations of PDP NPV, PDNP NPV and PUD NPV contained therein (as well as any recalculations thereof made by Agent as provided for in the definitions of PDP NPV, PDNP NPV and PUD NPV) the Agent shall make any exclusions required pursuant to clauses (a) and (b) of the above definition of Calculated Total NPV and shall notify the Borrower and each Lender of the resulting Calculated Total NPV. Such Calculated Total NPV shall thereupon be used for the purposes of Section 6.22(a) until a new Calculated Total NPV is calculated or estimated pursuant to this Agreement. Each determination of Calculated Total NPV shall be made as of the date of the applicable Engineering Report.

     (d) In the event that the Borrower does not furnish to the Agent and the Lenders the Independent Engineering Report, Internal Engineering Report or other information specified in clauses (a), (b) or (c) of Section 5.15, as applicable, by the date specified in such clause, the Agent may, based on the information available to it, estimate the Total NPV and the resulting Calculated Total NPV from time to time thereafter until the Agent and the Lenders receive the relevant Independent Engineering Report, Internal Engineering Report, as applicable, or other information. Such estimated Calculated Total NPV shall thereupon be used for the purposes of Section 6.22(a) until a new Calculated Total NPV is calculated or estimated pursuant to this Agreement.

ARTICLE VII

EVENTS OF DEFAULT; REMEDIES

     Section 7.01 Events of Default. The occurrence of any of the following events shall constitute an “Event of Default” under any Subordinated Loan Document:

     (a) Payment. The Borrower shall fail to (i) pay any principal of any Advance when the same becomes due and payable, or (ii) pay any interest on any Subordinated Note, any fees, reimbursements, indemnifications, or other amounts payable in connection with the Subordinated Obligations, this Agreement or any of the other Subordinated Loan Documents within three Business Days after the same becomes due and payable;

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     (b) Representation and Warranties. Any representation or warranty made or deemed to be made (i) by any Credit Party in this Agreement or in any other Subordinated Loan Document, or (ii) by any Credit Party in connection with this Agreement or any other Subordinated Loan Document, shall prove to have been incorrect in any material and adverse respect when made or deemed to be made;

     (c) Covenant Breaches. Any Credit Party shall fail to perform or observe (i) any covenant contained in Section 5.02(a), Section 5.06(e), Section 5.12 or Article VI of this Agreement or (ii) any other term or covenant set forth in this Agreement or in any other Subordinated Loan Document which is not covered by clause (i) above or any other provision of this Section 7.01 if such failure shall remain unremedied for 30 days after notice of such breach or failure has been given to the Borrower by the Agent or any of the Lenders (through the Agent);

     (d) Cross Defaults. (i) Any Credit Party shall fail to pay any principal of or premium or interest on its Debt which is outstanding in a principal amount of at least $5,000,000 individually or when aggregated with all such Debt of the Credit Parties so in default (but excluding Debt evidenced by the Subordinated Notes) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; (ii) any other event shall occur or condition shall exist under any agreement or instrument (including, without limitation, the Senior Credit Agreement) relating to Debt which is outstanding in a principal amount of at least $5,000,000 individually or when aggregated with all such Debt of the Credit Parties so in default, and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or (iii) any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment or optional prepayment), prior to the stated maturity thereof;

     (e) Insolvency. Any Credit Party shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Credit Party seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against any Credit Party either such proceeding shall remain undismissed for a period of 60 days or any of the actions sought in such proceeding shall occur; or any Credit Party shall take any corporate action to authorize any of the actions set forth above in this Section 7.01(e);

     (f) Judgments. Any judgment or order for the payment of money in excess of $5,000,000 (excluding liabilities to the extent covered by insurance unless the insurer has

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disputed that such insurance covers such liabilities) shall be rendered against any Credit Party and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect;

     (g) Subordinated Loan Documents. Any provision of any Subordinated Loan Document shall for any reason cease to be in full force and effect and valid, binding and enforceable in all material respects in accordance with their terms or cease in any material respect to create a valid and perfected Lien of the priority required thereby on any of the collateral purported to be covered thereby, except to the extent otherwise permitted by this Agreement, or any Credit Party shall so state in writing;

     (h) Brigham Exploration. Any Change of Control shall occur; or

     (i) Operator. The Borrower ceases to be the primary operating entity for Brigham Exploration and its Subsidiaries and the Borrower and its Subsidiaries cease to be the only Brigham Exploration entities owning Oil and Gas Properties.

     Section 7.02 Optional Acceleration of Maturity. If any Event of Default (other than an Event of Default pursuant to Section 7.01(e)) shall have occurred and be continuing, then, and in any such event:

     (a) the Agent (i) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the Commitments and the obligation of each Lender to make extensions of credit hereunder, including making Advances, to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Subordinated Notes, and the other Subordinated Loan Documents to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower; and

     (b) the Agent shall at the request of, or may with the consent of, the Majority Lenders proceed to enforce its rights and remedies under the Subordinated Security Instruments, this Agreement, and any other Subordinated Loan Document for the ratable benefit of the Lenders by appropriate proceedings.

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     Section 7.03 Automatic Acceleration of Maturity. If any Event of Default pursuant to Section 7.01(e) shall occur:

     (a) (i) the Commitments and the obligation of each Lender to make extensions of credit hereunder, including making Advances, shall terminate, and (ii) all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Subordinated Notes, and the other Subordinated Loan Documents shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower; and

     (b) the Agent shall at the request of, or may with the consent of, the Majority Lenders proceed to enforce its rights and remedies under the Subordinated Security Instruments, this Agreement, and any other Subordinated Loan Document for the ratable benefit of the Lenders by appropriate proceedings.

     Section 7.04 Right of Set off. Upon the occurrence and during the continuance of any Event of Default, the Agent and each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Agent or such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, the Subordinated Notes held by the Agent or such Lender, and the other Subordinated Loan Documents, irrespective of whether or not the Agent or such Lender shall have made any demand under this Agreement, such Subordinated Notes, or such other Subordinated Loan Documents, and although such obligations may be unmatured. The Agent and each Lender agrees to promptly notify the Borrower after any such set off and application made by the Agent or such Lender, provided that the failure to give such notice shall not affect the validity of such set off and application. The rights of the Agent and each Lender under this Section 7.04 are in addition to any other rights and remedies (including, without limitation, other rights of set off) that the Agent or such Lender may have.

     Section 7.05 Non-exclusivity of Remedies. No remedy conferred upon the Agent and the Lenders is intended to be exclusive of any other remedy, and each remedy shall be cumulative of all other remedies existing by contract, at law, in equity, by statute or otherwise.

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     Section 7.06 Application of Proceeds. From and during the continuance of any Event of Default, any monies or property actually received by the Agent pursuant to this Agreement or any other Subordinated Loan Document, the exercise of any rights or remedies under any Subordinated Security Instrument or any other agreement with the Borrower, any Guarantor or any of the Borrower’s Subsidiaries which secures any of the Subordinated Obligations, shall be applied in the following order:

     (a) First, to the payment of all amounts, including without limitation costs and expenses incurred in connection with the collection of such proceeds and the payment of any part of the Subordinated Obligations, due to the Agent under any of the expense reimbursement or indemnity provisions of this Agreement or any other Subordinated Loan Document, any Subordinated Security Instrument or other collateral documents, and any applicable law;

     (b) Second, to the ratable payment of accrued but unpaid commitment fees under this Agreement and the Subordinated Notes;

     (c) Third, to the ratable payment of accrued but unpaid interest on the Advances owing under this Agreement and the Subordinated Notes;

     (d) Fourth, ratably, according to the then unpaid amounts thereof, without preference or priority of any kind among them, to the ratable payment of all other Subordinated Obligations then due and payable which relate to Advances and which are owing to the Agent and the Lenders; and

     (e) Fifth, the remainder, if any, to the Borrower or its Subsidiaries, or its respective successors or assigns, or such other Person as may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

ARTICLE VIII

THE GUARANTY

     Section 8.01 Liabilities Guaranteed. Each Guarantor hereby, joint and severally, irrevocably and unconditionally guarantees the prompt payment at maturity of the Subordinated Obligations.

     Section 8.02 Nature of Guaranty. This guaranty is an absolute, irrevocable, completed and continuing guaranty of payment and not a guaranty of collection, and no notice of the Subordinated Obligations or any extension of credit already or hereafter contracted by or extended to the Borrower need be given to any Guarantor. This guaranty may not be revoked by any Guarantor and shall continue to be effective with respect to the Subordinated Obligations arising or created after any attempted revocation by such Guarantor and shall remain in full force and effect until the Subordinated Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto no Subordinated Obligations may be outstanding. The Borrower and the Lenders may modify, alter, rearrange, extend for any

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period and/or renew from time to time, the Subordinated Obligations, and the Lenders may waive any Default or Events of Default without notice to any Guarantor and in such event each Guarantor will remain fully bound hereunder on the Subordinated Obligations. This guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of the Subordinated Obligations is rescinded or must otherwise be returned by any of the Lenders upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. This guaranty may be enforced by the Agent and any subsequent holder of any of the Subordinated Obligations and shall not be discharged by the assignment or negotiation of all or part of the Subordinated Obligations. Each Guarantor hereby expressly waives presentment, demand, notice of non-payment, protest and notice of protest and dishonor, notice of Default or Event of Default, and also notice of acceptance of this guaranty, acceptance on the part of the Lenders being conclusively presumed by the Lenders’ request for this guaranty and the Guarantors’ being party to this Agreement.

     Section 8.03 Agent’s Rights. Each Guarantor authorizes the Agent, without notice or demand and without affecting any Guarantor’s liability hereunder, to take and hold security for the payment of its obligations under this Article VIII and/or the Subordinated Obligations, and exchange, enforce, waive and release any such security; and to apply such security and direct the order or manner of sale thereof as the Agent in its discretion may determine, and to obtain a guaranty of the Subordinated Obligations from any one or more Persons and at any time or times to enforce, waive, rearrange, modify, limit or release any of such other Persons from their obligations under such guaranties.

     Section 8.04 Guarantor’s Waivers.

     (a) General. Each Guarantor waives any right to require any of the Lenders to (i) proceed against the Borrower or any other person liable on the Subordinated Obligations, (ii) enforce any of their rights against any other guarantor of the Subordinated Obligations, (iii) proceed or enforce any of their rights against or exhaust any security given to secure the Subordinated Obligations, (iv) have the Borrower joined with any Guarantor in any suit arising out of this Article VIII and/or the Subordinated Obligations, or (v) pursue any other remedy in the Lenders’ powers whatsoever. The Lenders shall not be required to mitigate damages or take any action to reduce, collect or enforce the Subordinated Obligations. Guarantor waives any defense arising by reason of any disability, lack of corporate authority or power, or other defense of the Borrower or any other guarantor of the Subordinated Obligations, and shall remain liable hereon regardless of whether the Borrower or any other guarantor be found not liable thereon for any reason. Whether and when to exercise any of the remedies of the Lenders under any of the Subordinated Loan Documents shall be in the sole and absolute discretion of the Agent, and no delay by the Agent in enforcing any remedy, including delay in conducting a foreclosure sale, shall be a defense to any Guarantor’s liability under this Article VIII.

     (b) Subrogation. Until the Subordinated Obligations have been paid in full, each Guarantor waives all rights of subrogation or reimbursement against the Borrower, whether arising by contract or operation of law (including, without limitation, any such right arising

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under any federal or state bankruptcy or insolvency laws) and waives any right to enforce any remedy which the Lenders now have or may hereafter have against the Borrower, and waives any benefit or any right to participate in any security now or hereafter held by the Agent or any Lender.

     Section 8.05 Maturity of Obligations, Payment. Each Guarantor agrees that if the maturity of any of the Subordinated Obligations is accelerated by bankruptcy or otherwise, such maturity shall also be deemed accelerated for the purpose of this Article VIII without demand or notice to any Guarantor. Each Guarantor will, forthwith upon notice from the Agent, jointly and severally pay to the Agent the amount due and unpaid by the Borrower and guaranteed hereby. The failure of the Agent to give this notice shall not in any way release any Guarantor hereunder.

     Section 8.06 Agent’s Expenses. If any Guarantor fails to pay the Subordinated Obligations after notice from the Agent of the Borrower’s failure to pay any Subordinated Obligations at maturity, and if the Agent obtains the services of an attorney for collection of amounts owing by any Guarantor hereunder, or obtaining advice of counsel in respect of any of their rights under this Article VIII, or if suit is filed to enforce this Article VIII, or if proceedings are had in any bankruptcy, probate, receivership or other judicial proceedings for the establishment or collection of any amount owing by any Guarantor hereunder, or if any amount owing by any Guarantor hereunder is collected through such proceedings, each Guarantor jointly and severally agrees to pay to the Agent the Agent’s reasonable attorneys’ fees.

     Section 8.07 Liability. It is expressly agreed that the liability of each Guarantor for the payment of the Subordinated Obligations guaranteed hereby shall be primary and not secondary.

     Section 8.08 Events and Circumstances Not Reducing or Discharging any Guarantor’s Obligations. Each Guarantor hereby consents and agrees to each of the following to the fullest extent permitted by law, and agrees that each Guarantor’s obligations under this Article VIII shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any rights (including without limitation rights to notice) which each Guarantor might otherwise have as a result of or in connection with any of the following:

     (a) Modifications, etc. Any renewal, extension, modification, increase, decrease, alteration or rearrangement of all or any part of the Subordinated Obligations, or of the Subordinated Notes, or this Agreement or any instrument executed in connection therewith, or any contract or understanding between the Borrower and any of the Lenders, or any other Person, pertaining to the Subordinated Obligations;

     (b) Adjustment, etc. Any adjustment, indulgence, forbearance or compromise that might be granted or given by any of the Lenders to the Borrower or any Guarantor or any Person liable on the Subordinated Obligations;

     (c) Condition of the Borrower or any Guarantor. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution, death or lack of power of the Borrower or any Guarantor or any other Person at any time liable for the payment of all or

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part of the Subordinated Obligations; or any dissolution of the Borrower or any Guarantor, or any sale, lease or transfer of any or all of the assets of the Borrower or any Guarantor, or any changes in the shareholders, partners, or members of the Borrower or any Guarantor; or any reorganization of the Borrower or any Guarantor;

     (d) Invalidity of Obligations. The invalidity, illegality or unenforceability of all or any part of the Subordinated Obligations, or any document or agreement executed in connection with the Subordinated Obligations, for any reason whatsoever, including without limitation the fact that the Subordinated Obligations, or any part thereof, exceed the amount permitted by law, the act of creating the Subordinated Obligations or any part thereof is ultra vires, the officers or representatives executing the documents or otherwise creating the Subordinated Obligations acted in excess of their authority, the Subordinated Obligations violate applicable usury laws, the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Subordinated Obligations wholly or partially uncollectible from the Borrower, the creation, performance or repayment of the Subordinated Obligations (or the execution, delivery and performance of any document or instrument representing part of the Subordinated Obligations or executed in connection with the Subordinated Obligations, or given to secure the repayment of the Subordinated Obligations) is illegal, uncollectible, legally impossible or unenforceable, or this Agreement or other documents or instruments pertaining to the Subordinated Obligations have been forged or otherwise are irregular or not genuine or authentic;

     (e) Release of Obligors. Any full or partial release of the liability of the Borrower on the Subordinated Obligations or any part thereof, of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Subordinated Obligations or any part thereof, it being recognized, acknowledged and agreed by any Guarantor that such Guarantor may be required to pay the Subordinated Obligations in full without assistance or support of any other Person, and no Guarantor has been induced to enter into this Article VIII on the basis of a contemplation, belief, understanding or agreement that other parties other than the Borrower will be liable to perform the Subordinated Obligations, or the Lenders will look to other parties to perform the Subordinated Obligations.

     (f) Other Security. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Subordinated Obligations;

     (g) Release of Collateral etc. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security, at any time existing in connection with, or assuring or securing payment of, all or any part of the Subordinated Obligations;

     (h) Care and Diligence. The failure of the Lenders or any other Person to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security;

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     (i) Status of Liens. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Subordinated Obligations shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that no Guarantor is entering into this Article VIII in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Subordinated Obligations;

     (j) Payments Rescinded. Any payment by the Borrower to the Lenders is held to constitute a preference under the bankruptcy laws, or for any reason the Lenders are required to refund such payment or pay such amount to the Borrower or someone else; or

     (k) Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to this Agreement, the Subordinated Obligations, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Subordinated Obligations pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that each Guarantor shall be obligated to joint and severally pay the Subordinated Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, except for the full and final payment and satisfaction of the Subordinated Obligations.

     Section 8.09 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of the Borrower or any Subsidiary of the Borrower to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligation of the Borrower or such Subsidiary thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include without limitation all rights and claims of any Guarantor against the Borrower or any Subsidiary of the Borrower arising as a result of subrogation or otherwise as a result of such Guarantor’s payment of all or a portion of the Subordinated Obligations. Until the Subordinated Obligations shall be paid and satisfied in full and each Guarantor shall have performed all of its obligations hereunder, no Guarantor shall receive or collect, directly or indirectly, from the Borrower or any Subsidiary of the Borrower or any other party any amount upon the Guarantor Claims during the occurrence and the continuance of an Event of Default.

     Section 8.10 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving the Borrower or any Subsidiary of the Borrower, as debtor, the Lenders shall have the right to prove their claim in any proceeding, so as to establish their rights hereunder and receive directly from the receiver, trustee or other court custodian, dividends and payments which would otherwise be

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payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to the Lenders, subject to the prior rights of the Senior Agent and the Senior Lenders. Should the Agent or any Lender receive, for application upon the Subordinated Obligations, any such dividend or payment which is otherwise payable to any Guarantor, and which, as between the Borrower or any Subsidiary of the Borrower and any Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment in full of the Subordinated Obligations, such Guarantor shall become subrogated to the rights of the Lenders to the extent that such payments to the Lenders on the Guarantor Claims have contributed toward the liquidation of the Subordinated Obligations, and such subrogation shall be with respect to that proportion of the Subordinated Obligations which would have been unpaid if the Agent or a Lender had not received dividends or payments upon the Guarantor Claims.

     Section 8.11 Payments Held in Trust. In the event that notwithstanding Section 8.09 and Section 8.10, any Guarantor should receive any funds, payments, claims or distributions which is prohibited by such Sections, such Guarantor agrees to hold in trust for the Lenders an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions except to pay them promptly to the Agent or the Senior Agent, and each Guarantor covenants promptly to pay the same to the Agent or the Senior Agent.

     Section 8.12 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon the Borrower’s or any Subsidiary of the Borrower’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon the Borrower’s or any Subsidiary of the Borrower’s assets securing payment of the Subordinated Obligations, regardless of whether such encumbrances in favor of any Guarantor, the Agent or the Lenders presently exist or are hereafter created or attach.

     Section 8.13 Guarantor’s Enforcement Rights. Without the prior written consent of the Lenders, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against the Borrower or any Subsidiary of the Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceeding (judicial or otherwise, including without limitation the commencement of or joinder in any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any lien, mortgages, deeds of trust, security interest, collateral rights, judgments or other encumbrances on assets of the Borrower or any Subsidiary of the Borrower held by Guarantor.

ARTICLE IX

THE AGENT

     Section 9.01 Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof and of the other Subordinated Loan Documents, together with such powers as are reasonably incidental thereto. As to any matters

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not expressly provided for by this Agreement or any other Subordinated Loan Document (including, without limitation, enforcement or collection of the Subordinated Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Subordinated Notes; provided that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement, any other Subordinated Loan Document, or applicable law.

     Section 9.02 Agent’s Reliance, Etc. Neither the Agent nor any of its directors, officers, agents, or employees shall be liable for any action taken or omitted to be taken (including the Agent’s own negligence) by it or them under or in connection with this Agreement or the other Subordinated Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (a) may treat the payee of any Subordinated Note as the holder thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (b) may consult with legal counsel (including counsel for any Credit Party), independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations made in or in connection with this Agreement or the other Subordinated Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Subordinated Loan Document on the part of any Credit Party or to inspect the property (including the books and records) of any Credit Party; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other Subordinated Loan Document; and (f) shall incur no liability under or in respect of this Agreement or any other Subordinated Loan Document by acting upon any notice, consent, certificate, or other instrument or writing (which may be by telecopier or telex) believed by it to be genuine and signed or sent by the proper party or parties.

     Section 9.03 The Agent and Its Affiliates. With respect to its Commitments, the Advances made by it and the Subordinated Notes issued to it, the Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent. The term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include the Agent in its individual capacity. The Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, any Credit Party, and any Person who may do business with or own securities of any Credit Party, all as if the Agent were not an agent hereunder and without any duty to account therefor to the Lenders.

     Section 9.04 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the

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Financial Statements and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it shall, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

     Section 9.05 Indemnification. The Lenders severally agree to indemnify the Agent and each Affiliate thereof and its directors, officers, employees, and agents (to the extent not reimbursed by the Credit Parties), according to their respective Pro Rata Shares from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement or any other Subordinated Loan Document (including the Agent’s own negligence), and including, without limitation, environmental liabilities, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from the Agent’s gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings, or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Subordinated Loan Document, to the extent that the Agent is not reimbursed for such by the Credit Parties, provided that no Lender shall be liable for any portion of such out-of-pocket expenses (including counsel fees) incurred by the Agent as a result of the Agent’s gross negligence or willful misconduct.

     Section 9.06 Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders upon receipt of written notice from the Majority Lenders to such effect. Upon receipt of notice of any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent with, if any Event of Default has not occurred and is not continuing, the consent of the Borrower, which consent shall not be unreasonably withheld. If no successor Agent shall have been so appointed by the Majority Lenders with the consent of the Borrower, and shall have accepted such appointment, within 30 days after the resigning Agent’s giving of notice of resignation or the Majority Lenders’ removal of the resigning Agent, then the resigning Agent may, on behalf of the Lenders and the Borrower, appoint a successor Agent, which shall be, in the case of a successor agent, a commercial bank having a combined capital and surplus of at least $500,000,000.00. Upon the acceptance of any appointment as Agent by a successor Agent, such successor Agent shall thereupon succeed to and become vested

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with all the rights, powers, privileges, and duties of the resigning Agent, and the resigning Agent shall be discharged from its duties and obligations under this Agreement and the other Subordinated Loan Documents. After any resigning Agent’s resignation or removal hereunder as Agent, the provisions of this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Subordinated Loan Documents.

     Section 9.07 Collateral Matters.

     (a) The Agent is authorized on behalf of the Lenders, without the necessity of any notice to or further consent from the Lenders, from time to time, to take any actions with respect to any Collateral or Subordinated Security Instruments which may be necessary to perfect and maintain Acceptable Security Interests in and Liens upon the Collateral granted pursuant to the Subordinated Security Instruments. The Agent is further authorized on behalf of the Lenders, without the necessity of any notice to or further consent from the Lenders, from time to time, to take any action in exigent circumstances as may be reasonably necessary to preserve any rights or privileges of the Lenders under the Subordinated Loan Documents or applicable Legal Requirements.

     (b) Each of the Lenders irrevocably authorizes the Agent to release any Lien granted to or held by the Agent upon any Collateral (i) upon termination of the Commitments and payment in full of all outstanding Advances and all other Obligations payable under this Agreement and under any other Subordinated Loan Document; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted under this Agreement or the other Subordinated Loan Documents; (iii) constituting property in which any Credit Party owned no interest at the time the Lien was granted or at any time thereafter; (iv) constituting Oil and Gas Properties to which no Proven Reserves are attributed that currently are encumbered under the Mortgage Amendments; (v) if approved, authorized or ratified in writing by the Majority Lenders or all the Lenders, as the case may be, as required by Section 10.01 or (vi) as otherwise permitted by this Agreement. Upon the request of the Agent at any time, the Lenders will confirm in writing the Agent’s authority to release particular types or items of Collateral pursuant to this Section 9.07. The Agent hereby agrees, from time to time upon the prior written request of the Borrower, to execute and deliver such releases and/or termination documents as may be necessary to effectively release any and all of the Liens granted to or held by the Agent upon any Collateral described in this Section 9.07(b).

     (c) The powers conferred on the Agent under this Agreement and the other Subordinated Security Instruments are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the reasonable care of any Collateral in its possession and the accounting for monies or other property actually received by it hereunder, the Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Agent shall be deemed to have exercised reasonable care as to the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment

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substantially equal to that which the Agent accords its own property, provided that the Agent shall have no responsibility for taking any necessary steps to preserve rights against any parties with respect to any Collateral.

ARTICLE X

MISCELLANEOUS

     Section 10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement, the Subordinated Notes, or any other Subordinated Loan Document, nor consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that:

     (a) no amendment, waiver, or consent shall, unless in writing and signed by all of the Lenders and the Borrower, do any of the following:

          (i) waive any of the conditions specified in Section 3.01 or Section 3.02;

          (ii) increase the Commitments of the Lenders;

          (iii) change the percentage of Lenders which shall be required for the Lenders or any of them to take any action hereunder or under any other Subordinated Loan Document;

          (iv) amend Section 2.11 or this Section 10.01;

          (v) amend the definition of “Majority Lenders”;

          (vi) release any Guarantor from its obligations under Article VIII;

          (vii) permit any Credit Party to enter into any merger or consolidation with or into any other Person, except as permitted by Section 6.04 that would have the effect of releasing the Borrower or any Guarantor;

          (viii) release any Collateral, except for releases of Collateral in connection with dispositions permitted by this Agreement;

          (ix) reduce the principal of, or interest on, the Subordinated Notes or any fees or other amounts payable hereunder or under any other Subordinated Loan Document to or for the benefit of the Lenders;

          (x) postpone any date fixed for any payment of principal of, or interest on, the Subordinated Notes or any fees or other amounts payable hereunder or extend the Maturity Date; or

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          (xi) amend or waive any provision of, nor consent to any departure by any party thereto from the Intercreditor and Subordination Agreement to (A) permit any payment otherwise prohibited under the Intercreditor and Subordination Agreement, (B) amend or change the priority of any lien governed thereby or (C) the subordination provisions thereof;

     (b) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent, as the case may be, under this Agreement or any other Subordinated Loan Document.

Notwithstanding any of the foregoing provisions of this Section 10.01, the Agent may release Collateral relating to sales or transfers of property permitted under this Agreement or any other Subordinated Loan Document; provided that in no event shall Agent release all or substantially all of the Collateral without the prior written consent of each of the Lenders.

     Section 10.02 Notices, Etc. All notices and other communications shall be in writing (including, without limitation, telecopy or telex) and mailed by certified mail, return receipt requested, telecopied, telexed, hand delivered, or delivered by a nationally recognized overnight courier, at the address for the appropriate party specified in Schedule 1 or at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when so mailed, telecopied, telexed, or hand delivered or delivered by a nationally recognized overnight courier, be effective when received if mailed, when telecopy transmission is completed, when confirmed by telex answer-back, or when delivered by such messenger or courier, respectively, except that notices and communications to the Agent pursuant to Article II, Article IX or Article X shall not be effective until received by the Agent.

     Section 10.03 No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder or under any Subordinated Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

     Section 10.04 Costs and Expenses. The Borrower agrees to pay on demand (a) all reasonable out-of-pocket costs and expenses of the Agent in connection with the preparation, execution, delivery, modification, and amendment of this Agreement, the Subordinated Notes, and the other Subordinated Loan Documents including, without limitation, the reasonable fees and out of pocket expenses of counsel for the Agent with respect to advising the Agent as to its rights and responsibilities under this Agreement, and (b) all out of pocket costs and expenses, if any, of the Agent and each Lender (including, without limitation, reasonable counsel fees and expenses of the Agent and each Lender) in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of this Agreement, the Subordinated Notes, and the other Subordinated Loan Documents.

     Section 10.05 Binding Effect. This Agreement shall become effective when it shall have been executed by each of the Credit Parties and the Agent, and when the Agent shall have, as to

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each Lender, either received a counterpart hereof executed by such Lender or been notified by such Lender that such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Credit Parties, the Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or delegate its duties under this Agreement or any interest in this Agreement without the prior written consent of each Lender.

     Section 10.06 Lender Assignments and Participations.

     (a) Assignments. Any Lender may assign to one or more banks or other entities all or any portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it and the Subordinated Notes held by it); provided that (i) the amount of the Commitments and Advances of such Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall be, if to an entity other than a Lender, not less than $5,000,000.00, (ii) each such assignment shall be to an Eligible Assignee, (iii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with the Subordinated Notes subject to such assignment, and (iv) each Eligible Assignee (other than an Eligible Assignee that is a Lender or an Affiliate of a Lender) shall pay to the Agent a $3,500 administrative fee. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least three Business Days after the execution thereof unless otherwise waived by the Agent in its sole discretion, (A) the assignee thereunder shall be a party hereto for all purposes and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) such Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of such Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

     (b) Term of Assignments. By executing and delivering an Assignment and Acceptance, the Lender thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency of value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or the performance or observance by the Borrower or its Subsidiaries of any of their obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recently delivered financial statements pursuant

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to Section 5.06 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

     (c) The Register. The Agent shall maintain at its address referred to in Section 10.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Advances owing to, each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and each of the Credit Parties, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

     (d) Procedures. Upon its receipt of an Assignment and Acceptance executed by a Lender and an Eligible Assignee, together with the Subordinated Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of the attached Exhibit A, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower shall execute and deliver to the Agent in exchange for the surrendered Subordinated Notes (A) if such Eligible Assignee has acquired a Commitment, a new Subordinated Note to the order of such Eligible Assignee in an amount equal to such Commitment assumed by it pursuant to such Assignment and Acceptance and (B) if such Lender has retained any Commitment hereunder, a new Subordinated Note to the order of such Lender in an amount equal to the Commitment retained by it hereunder. Such new Subordinated Note shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the attached Exhibit E.

     (e) Participations. Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it and the Subordinated Notes held by it); provided that (i) such Lender’s obligations under this Agreement (including, without limitation, its Commitments to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Subordinated Notes for all purposes of this Agreement, (iv) the Credit Parties, the Agent and the

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other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement, and (v) such Lender shall not require the participant’s consent to any matter under this Agreement, except for change in the principal amount of the Subordinated Notes, reductions in fees or interest, releasing all or substantially all of any Collateral or Brigham Exploration or the General Partner as a Guarantor, permitting any Credit Party to enter into any merger or consolidation with or into any other (except as permitted hereby), postponement of any date fixed for any payment of principal of, or interest on, the Subordinated Notes or any fees or other amounts payable hereunder, or extensions of the Maturity Date. The Borrower hereby agrees that participants shall have the same rights under Section 2.13, Section 2.14 and Section 10.07 as a Lender to the extent of their respective participations.

     Section 10.07 Indemnification. The Borrower shall indemnify the Agent, the Lenders and each Affiliate thereof and their respective directors, officers, employees, and agents from, and discharge, release, and hold each of them harmless against, any and all losses, liabilities, claims, or damages which may be imposed on, incurred by, or asserted against them in any way relating to or arising out of this Agreement or any action taken or omitted by them under this Agreement or any other Subordinated Loan Document (including any such losses, liabilities, claims, damages, or expense incurred by reason of the person being indemnified’s own negligence or strict liability) and including without limitation Environmental Liabilities, but excluding any such losses, liabilities, claims, damages, or expenses incurred by reason of the gross negligence or willful misconduct of the person to be indemnified.

     Section 10.08 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

     Section 10.09 Survival of Representations, Etc. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of this Agreement and the Subordinated Loan Documents, the making of the Advances and any investigation made by or on behalf of the Lenders, none of which investigations shall diminish any Lender’s right to rely on such representations and warranties. All obligations of the Borrower provided for in Section 2.13, Section 2.14(c), Section 10.04 and Section 10.07 and all of the obligations of the Lenders in Section 9.05 shall survive any termination of this Agreement and repayment in full of the Subordinated Obligations.

     Section 10.10 Severability. In case one or more provisions of this Agreement or the other Subordinated Loan Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality, and enforceability of the remaining provisions contained herein or therein shall not be affected or impaired thereby.

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     Section 10.11 Governing Law. Except as otherwise expressly stated in any Subordinated Security Instrument, this Agreement, the Subordinated Notes and the other Subordinated Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of New York.

     Section 10.12 Submission To Jurisdiction; Waivers. The Borrower and each Guarantor hereby irrevocably and unconditionally:

     (a) submits for itself and its Property in any legal action or proceeding relating to this Agreement and the other Subordinated Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof;

     (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

     (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower or Guarantor at its address set forth in Section 10.02 or at such other address of which the Agent shall have been notified pursuant thereto;

     (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

     (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section 10.12(e) any special, exemplary, punitive or consequential damages.

     Section 10.13 Waiver of Jury Trial. Each of the Credit Parties, the Lenders and the Agent hereby acknowledges that it has been represented by and has consulted with counsel of its choice, and hereby knowingly, voluntarily, intentionally, and irrevocably waives any and all right to trial by jury in respect of any legal proceeding arising out of or relating to this Agreement, any other Subordinated Loan Document, or any of the transactions contemplated hereby or thereby.

     Section 10.14 Oral Agreements. This Agreement and the Subordinated Loan Documents represent the final agreement among the parties and may not be

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contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements among the parties hereto.

     Section 10.15 Dissemination of Information. The Agent and each Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) to the extent requested by any Governmental Authority in connection with banking regulations or supervision; (c) to the extent required by applicable Legal Requirements or by any subpoena or similar legal process; (d) to any other party to this Agreement; (e) to the extent required, in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder; (f) subject to an agreement for the benefit of the Credit Parties containing provisions substantially the same as those of this Section 10.15 or any other confidentiality obligation referred to herein, to (i) any participant or Eligible Assignee or any other Person acquiring an interest in the Subordinated Loan Documents (each a “Transferee”) and any prospective Transferee or (ii) any direct or indirect contractual counterparty or prospective counterparty (or such contractual counterparty’s or prospective counterparty’s professional advisor) to any credit derivative transaction relating to obligations of Credit Parties; (g) with the prior written consent of the Borrower; or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Agent or any Lender on a nonconfidential basis from a source other than any Credit Party. In addition, the Agent or any Lender may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry, and service providers to the Agent and the Lenders in connection with the administration and management of this Agreement, the other Subordinated Loan Documents, and the Advances. For the purposes of this Section 10.15, “Information” means all information received from, or on behalf of, any Credit Parties relating to any Credit Party or their business, other than any such information that is available to any Agent or any Lender on a nonconfidential basis prior to disclosure by any Credit Party; provided that, in the case of information received from any Credit Party after the date hereof, such information is clearly identified in writing at the time of delivery as confidential; and provided, further, that notwithstanding the foregoing, each Engineering Report shall be deemed to be confidential regardless of whether such Engineering Report is identified in writing at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 10.15 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

     Section 10.16 Production Proceeds. Notwithstanding that, by the terms of the various Subordinated Security Instruments, the Credit Parties are and will be assigning to the Agent and the Lenders all of the “Production Proceeds” (as defined therein) accruing to the Property

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covered thereby, so long as no Event of Default has occurred the Credit Parties may continue to receive from the purchasers of production all such Production Proceeds, subject, however, to the Liens created under the Subordinated Security Instruments, which Liens are hereby affirmed and ratified. Upon the occurrence of an Event of Default, the Agent and the Lenders may exercise all rights and remedies granted under the Subordinated Security Instruments, including the right to obtain possession of all Production Proceeds then held by the Credit Parties or to receive directly from the purchasers of production all other Production Proceeds. In no case shall any failure, whether intentional or inadvertent, by the Agent or the Lenders to collect directly any such Production Proceeds constitute in any way a waiver, remission or release of any of their rights under the Subordinated Security Instruments, nor shall any release of any Production Proceeds by the Agent or the Lenders to the Credit Parties constitute a waiver, remission, or release of any other Production Proceeds or of any rights of the Agent or the Lenders to collect other Production Proceeds thereafter.

     Section 10.17 Replacement of Lenders. If any Lender (a) requests compensation under Section 2.13, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, (b) defaults in its obligation to fund Advances hereunder, or (c) fails to consent to an election, consent, amendment, waiver or other modification to this Agreement or any other Loan Document that requires the consent of a greater percentage of the Lenders than the Majority Lenders and such election, consent, amendment, waiver or other modification is otherwise consented to by the Majority Lenders, then the Borrower may, at its sole expenses and effort, upon notice to such Lender and the Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

     (a) the Borrower shall have paid to the Agent the assignment fee specified in Section 10.06;

     (b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

     (c) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments thereafter; and

     (d) such assignment does not conflict with applicable Legal Requirement.

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     A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

     Section 10.18 Amendment and Restatement. The Borrower, the Agent and the Lenders have agreed that this Agreement is an amendment and restatement of the Existing Subordinated Credit Agreement in its entirety and the terms and provisions hereof supersede the terms and provisions thereof, and this Agreement is not a new or substitute credit agreement or novation of the Existing Subordinated Credit Agreement.

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     EXECUTED as of the date first above written.

BORROWER:
BRIGHAM OIL & GAS, L.P.
By:	Brigham, Inc., its General Partner
By:	/s/ Eugene B. Shepherd, Jr.
	Eugene B. Shepherd, Jr. Executive Vice President and Chief Financial Officer
GUARANTORS:
BRIGHAM EXPLORATION COMPANY
By:	/s/ Eugene B. Shepherd, Jr.
	Eugene B. Shepherd, Jr. Executive Vice President and Chief Financial Officer
BRIGHAM, INC.
By:	/s/ Eugene B. Shepherd, Jr.
	Eugene B. Shepherd, Jr. Executive Vice President and Chief Financial Officer

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AGENT:
THE ROYAL BANK OF SCOTLAND plc,
	as Agent
By:	/s/ Phillip Ballard
	Phillip Ballard Senior Vice President
LENDERS:
THE ROYAL BANK OF SCOTLAND plc
By:	/s/ Phillip Ballard
	Phillip Ballard Senior Vice President

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EXHIBIT A

FORM OF ASSIGNMENT AND ACCEPTANCE

Dated ________________, ______

     Reference is made to the Second Amended and Restated Subordinated Credit Agreement dated as of January [         ] 2005 (as the same may be amended or modified from time-to-time, the “Subordinated Credit Agreement”) among Brigham Oil & Gas, L.P., a Delaware limited partnership (the “Borrower”), Brigham Exploration Company, a Delaware corporation, Brigham, Inc., a Nevada corporation, the lenders party thereto (the “Lenders”), and The Royal Bank of Scotland plc, as agent (the “Agent”) for the Lenders. Capitalized terms not otherwise defined in this Assignment and Acceptance shall have the meanings assigned to them in the Subordinated Credit Agreement.

     Pursuant to the terms of the Subordinated Credit Agreement,                                          wishes to assign and delegate                     % ¹ of its rights and obligations under the Subordinated Credit Agreement. Therefore,                                         (“Assignor”),                                          (“Assignee”), and the Agent agree as follows:

     1. The Assignor hereby sells and assigns and delegates to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, without recourse to the Assignor and without representation or warranty except for the representations and warranties specifically set forth in clauses (i) and (ii) of Section 2 of this Assignment and Acceptance, a                     % interest in and to all of the Assignor’s rights and obligations under the Subordinated Credit Agreement as of the Effective Date (as defined below), including, without limitation, such percentage interest in the Assignor’s Advances owing to the Assignor, and the Subordinated Note held by the Assignor.

     2. The Assignor (i) represents and warrants that, prior to executing this Assignment and Acceptance, the aggregate outstanding principal amount of Advances owed to it by the Borrower is $                    ; (ii) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in, or in connection with, the Subordinated Credit Agreement or any other Subordinated Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of the Subordinated Credit Agreement or any other Subordinated Loan Document or any other instrument or document furnished pursuant thereto; (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or the performance or observance by any Credit Party

¹Specify percentage in no more than 5 decimal points.

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of any of its respective obligations under the Subordinated Credit Agreement or any other Subordinated Loan Document or any other instrument or document furnished pursuant thereto; and (v) attaches the Subordinated Note referred to in paragraph 1 above and requests that the Agent exchange such Subordinated Note for a new Subordinated Note dated                      ___, ___ in the principal amount of $                                         payable to the order of the Assignee, and [a new Subordinated Note dated                      ___,                     in the principal amount of $                     payable to the order of the Assignor.]

     3. The Assignee (i) confirms that it has received a copy of the Subordinated Credit Agreement, together with copies of the most recent financial statements referred to in Section 5.06 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor, or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Subordinated Credit Agreement or any other Subordinated Loan Document; (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Subordinated Credit Agreement and any other Subordinated Loan Document as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Subordinated Credit Agreement or any other Subordinated Loan Document are required to be performed by it as a Lender; (v) specifies as its Domestic Lending Office (and address for notices) the office set forth beneath its name on the signature pages hereof; (vi) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee’s status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Subordinated Credit Agreement and the Subordinated Notes or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty; ² and (vii) represents that it is an Eligible Assignee.

     4. The Assignee confirms that it has received a copy of the Intercreditor and Subordination Agreement and expressly agrees that it will be bound, in its capacity as a Subordinated Lender, by the terms thereof. The Assignee shall execute such other agreements, documents and instruments as the Senior Agent may reasonably request to effect the purpose of this paragraph 4.

²If the Assignee is organized under the laws of a jurisdiction outside the United States.

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     5. The effective date for this Assignment and Acceptance shall be dated                      ___, ___(the “Effective Date”) ³ and following the execution of this Assignment and Acceptance, the Agent will record it.

     6. Upon such recording, and as of the Effective Date, (i) the Assignee shall be a party to the Subordinated Credit Agreement for all purposes, and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Subordinated Credit Agreement.

     7. Upon such recording, from and after the Effective Date, the Agent shall make all payments under the Subordinated Credit Agreement and the Subordinated Note in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest, letter of credit fees and commitment fees) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Subordinated Credit Agreement and the Subordinated Note for periods prior to the Effective Date directly between themselves.

     8. This Assignment and Acceptance shall be governed by, and construed and enforced in accordance with, the laws of the State of New York.

³See Section 10.06 of the Subordinated Credit Agreement. Such date shall be at least three Business Days after the date of this Assignment and Acceptance, unless otherwise waived by the Agent in its sole discretion.

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     The parties hereto have caused this Assignment and Acceptance to be duly executed as of the date first above written.

[ASSIGNOR]

By:

Name:

Title:

Address:

Attention:

Telecopy No: (XXX) XXX-XXXX

[ASSIGNEE]

By:

Name:

Title:

Lending Office

Address:

Attention:

Telecopy No: (XXX) XXX-XXXX

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EXHIBIT B

FORM OF COMPLIANCE CERTIFICATE

FOR THE PERIOD FROM___________, _______ 200__ TO _____________ _____,200

     This certificate dated as of___, ___200___is prepared pursuant to Second Amended and Restated Subordinated Credit Agreement dated as of January [___] , 2005 (as the same may be amended or modified from time-to-time, the “Subordinated Credit Agreement”) among Brigham Oil & Gas, L.P., a Delaware limited partnership (the “Borrower”), Brigham Exploration Company, a Delaware corporation, Brigham, Inc., a Nevada corporation, the lenders party thereto (the “Lenders”), and The Royal Bank of Scotland plc, as agent (the “Agent”) for the Lenders. Unless otherwise defined in this certificate, capitalized terms that are defined in the Subordinated Credit Agreement shall have the meanings assigned to them by the Subordinated Credit Agreement.

     Brigham Exploration hereby certifies (a) that no Default or Event of Default has occurred or is continuing, (b) that all of the representations and warranties made by each of the Credit Parties in the Subordinated Credit Agreement and the other Subordinated Loan Documents are true and correct in all material respects as if made on this date (unless such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date), and (c) that as of the date hereof, the following amounts and calculations are true and correct:

1.	Section 6.18 Current Ratio.
	(a)	consolidated current assets of
		Brigham Exploration and its
		consolidated Subsidiaries
		(including the Unused Commitment
		Amount as defined in the Senior Credit
		Agreement of the date of calculation)	$___
	(b)	consolidated current liabilities of
		Brigham Exploration and its
		consolidated Subsidiaries (excluding
	current maturities of long-term debt)		$___
	Current Ratio = (a) divided by (b)
	Minimum Current Ratio		1.00 to 1.00
	Compliance		Yes       No

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2.	Section 6.19 Interest Coverage Ratio.
	(a)	Consolidated Net Income	$___
	(b)	Interest Expense	$___
	(c)	taxes, depreciation, amortization,
		depletion, and other non-cash
		charges	$___
	(d)	all non-cash income	$___
	(e)	EBITDA = (a) + (b) + (c) - (d)	$___
	Interest Coverage Ratio = (e) divided by (b)
	Minimum Interest Coverage Ratio for each twelve-month
	period ending at the end of each fiscal
	quarter		3.0 to 1.00
	Compliance		Yes       No

     IN WITNESS THEREOF, I have hereto signed my name to this Compliance Certificate as an officer of Brigham Exploration and not in my individual capacity as of _______ ___, 200___.

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EXHIBIT C

[RESERVED]

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EXHIBIT D

[RESERVED]

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EXHIBIT E

FORM OF SUBORDINATED NOTE

THIS INSTRUMENT IS SUBORDINATED TO THE EXTENT AND IN THE MANNER
PROVIDED IN THE INTERCREDITOR AND SUBORDINATION AGREEMENT
REFERRED TO BELOW.

SUBORDINATED NOTE

$[______________]                                                                                                                                      January [__], 2005

     For value received, the undersigned BRIGHAM OIL & GAS, L.P., a Delaware limited partnership (the “Borrower”), hereby promises to pay to the order of ___(the “Payee”) the principal amount of ___No/100 Dollars ($___) or, if less, the aggregate outstanding principal amount of the Advances (as defined in the Subordinated Credit Agreement referred to below) made by the Payee to the Borrower, together with interest on the unpaid principal amount of the Advances from the date of such Advances until such principal amount is paid in full, at such interest rates, and at such times, as are specified in the Subordinated Credit Agreement. The Borrower may make prepayments on this Subordinated Note in accordance with the terms of the Subordinated Credit Agreement.

     This Subordinated Note is one of the Subordinated Notes referred to in, and is entitled to the benefits of, and is subject to the terms of, the Second Amended and Restated Subordinated Credit Agreement dated as of January [___], 2005, (as the same may be amended or modified from time to time, the “Subordinated Credit Agreement”), among the Borrower, Brigham Exploration Company, a Delaware corporation, Brigham, Inc., a Nevada corporation, the lenders party thereto (the “Lenders”), and The Royal Bank of Scotland plc, as agent (the “Agent”) for the Lenders. Capitalized terms used in this Subordinated Note that are defined in the Subordinated Credit Agreement and not otherwise defined in this Subordinated Note have the meanings assigned to such terms in the Subordinated Credit Agreement. The Subordinated Credit Agreement, among other things, (a) provides for the making of the Advances by the Payee to the Borrower in an aggregate amount not to exceed at any time outstanding the Dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such Advance being evidenced by this Subordinated Note and (b) contains provisions for acceleration of the maturity of this Subordinated Note upon the happening of certain events stated in the Subordinated Credit Agreement and for prepayments of principal prior to the maturity of this Subordinated Note upon the terms and conditions specified in the Subordinated Credit Agreement.

     In connection with the execution and delivery of the Subordinated Credit Agreement, the Agent, the Borrower, Brigham Exploration Company, Brigham, Inc., and Société Générale, as administrative agent (the “Senior Agent”) under that certain Third Second Amended and Restated Credit Agreement dated as of January [___], 2005, (as the same may be amended or modified from time to time, the “Senior Credit Agreement”), among the Borrower, Brigham Exploration Company, Brigham, Inc., the lenders party thereto, have entered into that certain

E-1

Second Amended and Restated Intercreditor and Subordination Agreement dated as of January [___], 2005 (as the same may be amended or supplemented from time to time, the “Intercreditor and Subordination Agreement”). Payments of principal and interest on this Subordinated Note are subordinated to the extent provided in the Intercreditor and Subordination Agreement.

     Both principal and interest are payable in lawful money of the United States of America to the Agent at 101 Park Avenue, 12^th Floor, New York, New York 10178 or such other location or address in New York specified by the Agent to the Borrower in same day funds. The Payee shall record payments of principal made under this Subordinated Note, but no failure of the Payee to make such recordings shall affect the Borrower’s repayment obligations under this Subordinated Note.

     This Subordinated Note is secured by the Subordinated Security Instruments and guaranteed pursuant to Article VIII of the Subordinated Credit Agreement.

     Except as specifically provided in the Subordinated Credit Agreement, the Borrower hereby waives presentment, demand, protest, notice of intent to accelerate, notice of acceleration, and any other notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder of this Subordinated Note shall operate as a waiver of such rights.

     THIS SUBORDINATED NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     THIS SUBORDINATED NOTE AND THE OTHER SUBORDINATED LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

     THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[SIGNATURE OF BRIGHAM OIL & GAS, L.P

E-2

EX-21

Exhibit 21

SUBSIDIARIES

Brigham Oil & Gas, L.P., a Delaware limited partnership

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-56961 and 333-70137) and Form S-3 (File No. 333-116390) of Brigham Exploration Company of our report dated March 30, 2005, relating to the consolidated financial statements, management’s assessment of the effectiveness of internal controls over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Houston, Texas
March 31, 2005

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT PETROLEUM CONSULTANTS

Cawley, Gillespie & Associates, Inc.
Petroleum Consultants
306 West Seventh Street, Suite 302
Fort Worth, Texas 76102
817-336-2461

March 14, 2005

Brigham Exploration Company
6300 Bridge Point Parkway
Building 2, Suite 500
Austin, Texas 78730

Gentlemen:

As independent petroleum consultants, we hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-116390) and Form S-8 (Nos. 333-56961 and 333-70137) of Brigham Exploration Company of our estimates of reserves, included in this Annual Report on Form 10-K, and to all references to our firm included in this Annual Report.

Very truly yours,

Cawley, Gillespie & Associates, Inc.

/s/ CAWLEY, GILLESPIE & ASSOCIATES, INC.

Fort Worth, Texas

EX-31.1

EXHIBIT 31.1

CERTIFICATION

     I, Bud M. Brigham, certify that:

1.	I have reviewed this annual report on Form 10-K of Brigham Exploration Company;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions and about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

        Date: March 31, 2005

/s/ Bud M. Brigham

Bud M. Brigham

Chief Executive Officer, President and

Chairman of the Board

EX-31.2

EXHIBIT 31.2

CERTIFICATION

     I, Eugene B. Shepherd, Jr., certify that:

1.	I have reviewed this annual report on Form 10-K of Brigham Exploration Company;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions and about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

        Date: March 31, 2005

/s/ Eugene B. Shepherd, Jr.

Eugene B. Shepherd, Jr.

Executive Vice President and

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

     In connection with the accompanying Annual Report of Brigham Exploration Company (the “Company”) on Form 10-K, for the period ended December 31, 2004 (the “Report”), I, Ben M. Brigham, Chief Executive Officer, President and Chairman of the Board of the Company, hereby certify that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2005

/s/ Ben M. Brigham

Ben M. Brigham

Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

     In connection with the accompanying Annual Report of Brigham Exploration Company (the “Company”) on Form 10-K, for the period ended December 31, 2004 (the “Report”), I, Eugene B. Shepherd, Jr., Chief Financial Officer of the Company, hereby certify that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2005

/s/ Eugene B. Shepherd, Jr.

Eugene B. Shepherd, Jr.

Chief Financial Officer